Download - BasicNet 2013 Annual Report Accounts 2013 Annual... · 2013 ANNUAL REPORT AND ACCOUNTS CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2013 ... Paolo Cafasso Giovanni

2013 ANNUAL REPORT

AND ACCOUNTS

CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2013

DIRECTORS’ REPORT

GROUP CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES

BASICNET S.P.A. FINANCIAL STATEMENTS AND EXPLANATORY NOTES

BasicNet Group – Consolidated and Separate Financial Statements as at December 31, 2013 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CONTENTS

CCOONNTTEENNTTSS

Corporate Boards of BasicNet S.p.A. .............................................................................................................. 1 2013 Operational Overview and Events .......................................................................................................... 5 2013 Financial Performance Overview ........................................................................................................... 7 The Group ....................................................................................................................................................... 7 The Parent Company ..................................................................................................................................... 10 Reconciliation between consolidated net profit and Parent Company net profit ........................................... 12 The BasicNet share price ............................................................................................................................... 12 The Group at a glance ................................................................................................................................... 13 Human Resources .......................................................................................................................................... 18 Information on the Environment ................................................................................................................... 18 Principal risks and uncertainties .................................................................................................................... 19 Subsequent Events to the year-end and Outlook ........................................................................................... 21 Proposal to the Shareholders’ Meeting for the allocation of the net profit for the year ................................ 22 Other Information .......................................................................................................................................... 23 Treasury Shares ............................................................................................................................................. 23 Stock Option plans ........................................................................................................................................ 23 Shares held by Directors and Statutory Auditors .......................................................................................... 23 Transactions with holding companies, associates, other investments and related parties ............................. 23 Research & Development .............................................................................................................................. 24 Corporate Governance and Ownership Structure Report .............................................................................. 24 BasicNet Group Consolidated Income Statement ......................................................................................... 42 Comprehensive Consolidated Income Statement .......................................................................................... 43 BasicNet Group Consolidated Balance Sheet ................................................................................................ 44 Consolidated Cash Flow statement of the BasicNet Group ........................................................................... 45 Statement of changes in Consolidated Shareholders' Equity ......................................................................... 46 Consolidated Net Financial Position ............................................................................................................. 47 Explanatory Notes ......................................................................................................................................... 48 Disclosure pursuant to Article 149 duodecies of the Consob Issuer’s Regulation ........................................ 94 Companies included in the consolidation under the line-by-line method ...................................................... 95 Companies included in the consolidation under the proportional method ..................................................... 96 Investments at December 31, 2013 ................................................................................................................ 97 Declaration of the consolidated financial statements pursuant to Article 154-bis paragraph 5 and 5-bis

of legislative Decree No. 58 of February 24, 1998 “Finance Act on financial intermediation” ...... 98 BasicNet S.p.A. – Income Statement .......................................................................................................... 100 BasicNet S.p.A. – Comprehensive income statement ................................................................................. 101 BasicNet S.p.A. – Balance Sheet ................................................................................................................. 102 BasicNet S.p.A. – Cash flow Statement ...................................................................................................... 103 BasicNet S.p.A. - Statement of changes in Shareholders' Equity ................................................................ 104 BasicNet S.p.A. – Net Financial Position .................................................................................................... 105 BasicNet S.p.A. – 2013 Income Statement as per Consob Resolution 15519 of July 27, 2006 .................. 106 BasicNet S.p.A. – Balance Sheet at December 31, 2013 Consob Resolution 15519 of July 27, 2006 ........ 107 BasicNet S.p.A. – Cash Flow Statement at December 31, 2013 Consob Resolution 15519 of July 27,

2006............................................................................................................................................... 108 Explanatory Notes ....................................................................................................................................... 110 Investments at December 31, 2013 .............................................................................................................. 152 Investments at December 31, 2013 .............................................................................................................. 155 Declaration of the financial statements pursuant to Article 154-bis paragraph 5 and 5-bis of legislative

Decree No. 58 of February 24, 1998 “Finance act on financial intermediation” .......................... 156 Disclosure pursuant to Article 149 duodecies of the Consob Issuer’s Regulation ...................................... 157

BasicNet Group – Consolidated and Separate Financial Statements as at December 31, 2013 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CORPORATE BOARDS

1

CORPORATE BOARDS of BasicNet S.p.A.

Board of Directors

Marco Daniele Boglione Chairman Daniela Ovazza Vice Chairman Franco Spalla Chief Executive Officer Paola Bruschi Directors Paolo Cafasso Giovanni Crespi (1) Alessandro Gabetti Davicini Adriano Marconetto (1) Carlo Pavesio Elisabetta Rolando (1) Independent directors

Remuneration committee

Carlo Pavesio Chairman Adriano Marconetto Daniela Ovazza

Control and Risks Committee

Giovanni Crespi Chairman Alessandro Gabetti Davicini Adriano Marconetto

Board of Statutory Auditors Massimo Boidi Chairman Carola Alberti Standing Auditors

Maurizio Ferrero

Fabio Pasquini Alternate Auditors

Alessandra Vasconi

Independent Audit Firm PricewaterhouseCoopers S.p.A.

BasicNet Group – Consolidated and Separate Financial Statements as at December 31, 2013 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

DIRECTORS’ REPORT

2

“We bring together a large number of entrepreneurs across the world for a common goal. We manage all the critical data along the supply chain. We earn service commissions for approx. one-third of the added value generated by the entire process, capitalising all the enhanced value of the trademarks from the development of sales. We achieve this through continually sourcing state-of-the-art software technologies and peerless internet integration to manage all the processes of our business”.


DIRECTORS’ REPORT

3

Dear Shareholders, 2013 was a very good year for the Group. A significant improvement in all of the key performance indicators and a consolidated net profit of Euro 4.5 million were reported. The international expansion of the Brands continued through the signing of new license agreements and the renewal of existing licenses, against a background of unstable consumer and currency markets, which did not always demonstrate, in the conversion into Euro, the higher turnover achieved on local markets. On the domestic market, which demonstrates highly restrictive household consumption and business lending numbers, a review of some organisational processes of the Italian holdings was carried out, in order to improve profitability, with positive effects already apparent in the second part of the year. The Parent Company BasicNet S.p.A. reports a net profit of Euro 4.6 million. The stock market performance was strong with the share price up 70.8% in 2013. The 2013 Key Financial Highlights:

aggregate sales of Group products at like-for-like exchange rates of Euro 435 million (Euro 434 million in 2012);

excellent results on the American markets (+22%) and in the Middle East and Africa (+12%). The European market grew 2% in the second part of the year, recovering the contraction in H1 2013 through the effective commercial actions of licensees. Italian sales volumes growth countered the general sector contraction;

royalties and sourcing commissions total Euro 40 million (Euro 42 million in 2012), the reduction due to exchange rate movements - particularly in those countries which although improving sales in local currency reported a decline on conversion into Euro;

consolidated direct sales in Italy improve 1.5% to Euro 111.7 million (+15.2% in Q4 2013 alone). Group brand store sales up 3%;

significant growth for the contribution margin on direct sales, up 7.8% on 2012 to Euro 43 million (+23.6% in Q4 2013 alone), and in percentage terms rising from 36% to 38.2%;

other income totals Euro 12.9 million (Euro 3.9 million in 2012); principally concerning the signing fee for the renewal of the Kappa® brand license agreement for the South Korean market;

EBITDA of Euro 22.8 million up significantly (Euro 10.9 million, +87.5%) on Euro 12.1 million in 2012;

EBIT of Euro 16.7 million, before a provision of Euro 4.5 million to cover the review of the organisational processes at the Italian subsidiaries. EBIT, inclusive of the provision, totals Euro 12.2 million, up 133% on Euro 5.2 million in 2012;

pre-tax profit of Euro 8.4 million more than quadruples on 2012 (Euro 1.8 million);

net profit of Euro 4.5 million.

the net debt at Euro 53.1 million continues to reduce (Euro 61.2 million at December 31, 2012), amid investments of Euro 8 million, long-term loan repayments of Euro 4.5 million and share buy-backs of Euro 300 thousand; debt/equity ratio of 0.79, including property loans (0.97 at December 31, 2012).


DIRECTORS’ REPORT

4

Parent Company Key Financial Highlights:

EBIT of Euro 7.2 million (Euro 10.7 million in 2012) reflecting exchange rates which impacted royalties and sourcing commissions and a non-recurring increase in some overhead costs;

net profit of Euro 4.6 million;

net cash position of Euro 30.4 million.

In relation to the “alternative performance indicators”, as defined by CESR/05-178b recommendation and Consob Communication DEM/6064293 of July 28, 2006, we provide below a definition of the indicators used in the present Directors’ Report, as well as their reconciliation with the financial statement items: Licensee aggregate sales: Sales by licensees, recognised by the BasicNet Group to the “royalties and

sourcing commissions” account of the income statement;

EBITDA: “operating result” before “amortisation and depreciation” and “write-downs and other provisions”;

EBIT: “operating result”;

Overhead costs: total of the following income statement accounts: “sponsorship and media costs”, “personnel costs”, “selling, general and administrative expenses, royalties expenses”;

Contribution margin on direct sales:

“gross profit”

Consolidated net result: “Group result”;

Result per ordinary share: “basic earnings per share”;

Net debt: total of current and medium/long-term financial payables, less cash and cash equivalents and other current financial assets.


DIRECTORS’ REPORT

5

2013 OPERATIONAL OVERVIEW AND EVENTS

International operations

The strong focus on international expansion continued in 2013, particularly on those markets in which the BasicNet Group can achieve more significant growth rates. A number of new licensing contracts were therefore signed - particularly for the Superga® and K-Way® brands, which are achieving great success also internationally - and major international technical sponsorships were finalised in support of Kappa® brand commercial activities.

For the Kappa® and Robe di Kappa® brands, new agreements were signed for Argentina and Uruguay, Tunisia and for Belgium. In January, a ten-year licensing agreement renewal for South Korea was signed for the Kappa® and Robe di Kappa® brands - with the signing fee recognised under other income as relating to an extension of the original contract. Licensing agreements were also renewed for the markets of Taiwan, Vietnam, Laos, Cambodia, Singapore, Malaysia, Indonesia, South Africa, the Middle East, Mexico and for Sweden, Norway and Denmark. The “glasses” category license for the Far East was renewed and a global license for the “watches” category granted. Kappa® and Robe di Kappa® sales points opened by licensees globally numbered approx. 1,400 at year-end, of which 146 mono-brand stores and 1,254 Shop in Shops.

New licensing contracts were signed for the Superga® brand in Argentina and Uruguay, Germany, Greece, Denmark, Sweden, Norway, Tunisia, the Middle East and the ex-Yugoslav states. In addition, agreements were renewed for the United States and Canada, Great Britain and Ireland, Turkey and Cyprus, Vietnam and Singapore, Thailand, Malaysia, Cuba and South Africa. The “socks” and “slippers” license for Italy was also renewed. The joint venture on the Chinese market formed in December by the Superga® licensee for Hong Kong, China and Shanghai with a local partner for the opening of at least 50 mono-brand stores over a period of three years is particularly highlighted. At year-end the Superga® stores opened by licensees numbered 230 globally - of which 121 as mono-brand sales points and 109 as Shop in Shops.

New licensing agreements were signed for the K-Way® brand in France, Belgium, Singapore, Malaysia and The Philippines. A license was granted for the “baby care” category in Italy. Mono-brand stores opened by licensees globally numbered 17 in 2013, of which 15 in Europe, 1 in America and 1 in Asia - while a large number of corners were opened in multi-brand stores. The Lanzera® brand licensing agreement for the US was renewed.

The Italian market

A number of processes carried out in Italy were reviewed in the year (purchases, value proposition, logistics, optimisation of sales points) in order to improve profit margins. A return is already apparent from these actions with significant improvements in terms of overall profit levels and margins and against which charges have being provisioned of Euro 4.5 million. Specifically, in Q4 alone the margin improved 23.6% compared to the same period of the previous year.

Consolidated direct sales increased 1.5%. The plug@sell® stores at year-end numbered 268, with commercial growth of 3% on 2012.


DIRECTORS’ REPORT

6

Brands

At the end of July an agreement was reached involving an additional payment of Euro 2.2 million for the full settlement of a legal dispute concerning the purchase agreement of the K-Way® brand signed in 2004 with Formula Sport Group S.r.l.

Sponsorship and communication

Group brand communication was principally through team sponsorships, press campaigns and TV advertising.

The Kappa® brand is historically associated with high profile sponsorships. The brand in fact sponsors over 120 teams, of which 60 football teams, in over 38 countries and on 5 continents. In Europe, the brand sponsors over 20 football teams in Italy, France, Germany Scandinavia and Spain. In other sports, the Kappa® brand sponsors three major Rugby clubs in France, another sport with high media visibility and, in Eastern Europe, ice hockey teams. In Italy, sponsorship is principally focused on the National Sporting Federations. The partnership which has recently given the greatest visibility to the brand was the Sochi Winter Olympics with the Italian Winter Sports Federation, together with the other important Federations of Fencing, Canoeing, Golf and Judo, Wrestling and Karate. Football is the most common sponsorship on the American continent, with nine teams in Brazil sponsored, two in Mexico and five in Argentina, where the main sponsorship is however with the Argentinian National Basketball team, through an agreement reached in 2013 for four years. In Asia, we have sponsorships with the National football teams of Oman and Kuwait, the National Basketball team of Singapore, in addition to numerous football teams in the United Arab Emirates, South Korea, Thailand and Vietnam. In Africa, four football teams are sponsored in South Africa, in addition to clubs in Algeria, Nigeria and Tunisia. Finally, in Oceania, three football clubs in the Australian first division are sponsored, in addition to the National team of the Fiji Islands. In terms of events, Kappa® in Italy sponsors the Kappa FuturFestival, which has a growing appeal in the electronic music world, welcoming thousands of young people from across the globe to Turin.

For Superga® and K-Way® significant co-branding initiatives were developed with well-known stylists and prestigious international clothing and footwear brands. In particular:

- the Superga® brand teamed up with famous global fashion bloggers such as Leandra Medine, American author and creator of multi-award winning blogs such as The Man Repeller, Chiara Ferragni alias The Blonde Salad, the Disney brands, Hydrogen, Collection Privèe, Madewell, the Japanese brands Edifice, X-Girl United Arrows and Green Label Relaxing, and finally the concepts store 10, corso Como, Milan and the sports chain in Italy, Athletes World.

- the K-Way® brand partnered with Marc Jacobs, Versus Versace, Kristina T, Iceberg and Italia Independent, the concept store 10, corso Como, Milan and Colette in Paris. The latest agreement was with Maje, a leading French fashion house.

Since December BasicVillage has hosted an exhibition in a wing of the National Science Museum of Turin, with the first Temporary Science Museum curated by the Museum, as well as the permanent show on the IT revolution organised by BasicGallery.


DIRECTORS’ REPORT

7

2013 FINANCIAL PERFORMANCE OVERVIEW

THE GROUP

BasicNet Group Key Financial Highlights

The condensed income statement for the year is reported below: (In Euro thousands) FY 2013 FY 2012

(restated) Changes

Licensee aggregate sales* 430,970 433,765 (2,795)

Licensee aggregate sales at like-for-like exchange rates*

435,123 433,765 1,358

Royalties and sourcing commissions 39,806 42,412 (2,606)

Consolidated direct sales 111,696 110,026 1,670

EBITDA*** 22,767 12,143 10,624

EBIT*** 12,227 5,243 6,984

Group Net Profit** 4,501 (17,166) 21,667

Basic earnings per share 0.0781 n/a n/a

* Data not audited

** Inclusive for 2012 of extraordinary tax provisions

*** for the definition of the indicators, reference should be made to paragraph 4 of the present Report

The breakdown of the licensee aggregate sales by geographic area is as follows:

FY 2013 FY 2012 Changes (In Euro thousands)

Licensee Aggregate Sales

Total

%

Total

%

Total

%

Europe 299,024 69.38% 304,752 70.26% (5,728) (1.88%)

The Americas 19,378 4.50% 15,920 3.67% 3,458 21.72%

Asia and Oceania 71,293 16.54% 76,462 17.63% (5,169) (6.76)%

Middle East and Africa 41,275 9.58% 36,631 8.44% 4,644 12.68%

Total 430,970 100.00% 433,765 100.00% (2,795) (0.64%)

On a like-for-like basis aggregated sales amounted to Euro 435 million compared to Euro 434 million in 2012. Sales grew strongly in the Americas (+22%), with good performances of the Superga® and K-Way® brands, and in the Middle East and Africa, with growth of 12.7%. The European market grew 2% in the second part of the year, recovering the contraction of H1 2013, driven by the commercial actions of licensees and signs of commercial recovery in some countries. On the domestic market, sales reported growth in volumes on the previous year, against a very challenging economic backdrop. The Asian and Oceania markets report small decreases principally due to the depreciation of some local currencies.

Royalties and sourcing commissions amounted to Euro 39.8 million compared to Euro 42.4 million in the previous year, reflecting the currency fluctuations indicated for aggregated sales. In addition, the destocking activity of some important licensees, in particular in the first part of the year, had an impact on the sourcing commissions.


DIRECTORS’ REPORT

8

Direct consolidated sales in 2013 totalled Euro 111.7 million, growth of 1.5% on 2012 (+15.2% in the fourth quarter of 2013).

The gross contribution margin amounted to Euro 42.7 million, up 7.8% on 2012 (+23.6% in the fourth quarter of 2013). The margin rose to 38.2% compared to 36% in 2012, benefitting from the actions implemented to improve profitability.

Other income amounted to Euro 12.9 million (Euro 3.9 million in 2012) including the signing fee of USD 12 million (Euro 9.4 million), recognised by the South Korean licensee for the Kappa® and Robe di Kappa® brands, for the ten-year renewal of the license contract.

Sponsorship and media costs, amounting to Euro 14.6 million, decreased by 19% on 2012 due to the conclusion of some team sponsorship and investment cut-backs in Italy, which began at the beginning of the year.

Personnel costs amounted to Euro 19.2 million. The Group headcount at December 31, 2013 was 512 compared to 565 at December 31, 2012, a decrease of 53, related to a normal staff turnover, prevalently in the second part of the year and therefore with limited impact on the overall costs for the year.

Selling, general and administration expenses increased from Euro 36.8 million to 38.8 million. The increase of 5% on the previous year is related to higher technical, stylistic, fiscal and legal consultant expenses, in part non-recurring of approx. Euro 1 million, an increase in indirect tax charges of Euro 0.2 million and the rental expenses and related charges of the directly managed plug@sell® stores which became fully operational in the year. The doubtful debt provision of Euro 3 million (Euro 2.4 million in 2012) reflects a higher provision to cover possible insolvency risks, related to the present liquidity difficulties on the national market.

EBITDA for the year was approx. Euro 23 million (Euro 12 million in 2012).

Amortisation and depreciation, which includes leased equipment and other assets, amounted to approx. Euro 6 million, a decrease of 12% on the previous year.

Write-downs and other provisions, amounting to Euro 4.5 million, related to the operational streamlining actions undertaken by the Italian subsidiaries, fully expensed in 2013.

EBIT, inclusive of the extraordinary write-down, totals Euro 12.2 million, up 133% on Euro 5.2 million in 2012.

Net financial charges, including exchange gains and losses, increased from Euro 3.4 million in 2012 to Euro 3.8 million in 2013. The difference is entirely related to exchange losses, as the financial charges servicing the debt decreased 7.6% on the lower bank debt.

The pre-tax result in 2013 amounted to Euro 8.4 million.

The net profit amounted to Euro 4.5 million, after current and deferred income taxes of Euro 3.8 million, compared to a substantially breakeven result in 2012, after extraordinary tax charges of Euro 17.5 million, fully expensed in the previous year.


DIRECTORS’ REPORT

9

The changes in the balance sheet are reported below: BasicNet Group - Condensed Balance Sheet

(In Euro thousands) December 31, 2013 December 31, 2012 Changes

Property 23,572 24,285 (713) Brands 34,481 32,292 2,189 Non-current assets 26,818 30,260 (3,442) Current assets 118,095 119,455 (1,360)

Total Assets 202,966 206,292 (3,326)

Group shareholders' equity 67,615 62,832 4,783 Non-current liabilities 29,778 29,827 (49) Current liabilities 105,573 113,633 (8,060)

Total liabilities and shareholders’ equity 202,966 206,292 (3,326)

BasicNet Group Summary Net Financial Position


Net financial position – Short-term (31,314) (40,353) 9,039

Financial payables – Medium-term (19,462) (18,623) (839)

Finance leases (2,347) (2,216) (131)

Total net financial position (53,123) (61,192) 8,069

Net Debt/Equity ratio (Net financial position/Shareholders’ equity)

0.79 0.97 (0.18)

BasicNet S.p.A. Summary Net Financial Position

(In Euro thousands) December 31,

2013

December 31,

2012

Changes

Net financial position – Short-term (3,591) (11,907) 8,316

Financial payables – Medium-term (6,603) (4,156) (2,447)

Finance leases (43) (58) 15

Financial position with third parties (10,237) (16,121) 5,884

Group financial receivables/ (payables) 40,674 62,516 (21,842)

Financial position with the Group 40,674 62,516 (21,842)

Total net financial position 30,437 46,395 (15,958)


DIRECTORS’ REPORT

10

Investments, amounting to Euro 8 million, related to the development of software programmes for Euro 1.9 million, EDP and furniture and fittings for Euro 2 million, expenses incurred for the management of proprietary brands and the acquisition of software licenses for Euro 0.5 million, goodwill and store improvements for Euro 0.6 million and plant, equipment and building improvements for Euro 0.8 million. Investments include an additional fee paid for the K-Way® brand, as illustrated in the explanatory notes, for Euro 2.2 million.

Good working capital management saw a reduction in inventories of Euro 3.9 million and trade receivables (Euro 1 million), despite an increase in sales volumes. Trade payables also decreased (Euro 4 million). Cash flow generated from operations (self-financing and change in working capital) total approx. Euro 15.8 million.

Total net debt, including medium-term loans and finance and property leasing, reduced from Euro 61.2 million at December 31, 2012 to Euro 53 million at December 31, 2013 after investments of Euro 8 million, buy-back of treasury shares of Euro 0.3 million and repayment of long-term loans of Euro 4.5 million. A bank loan was received in June, repayable in quarterly instalments for a period of 42 months and maturity in December 2016. The loan increased the level of medium-term debt above 50% of the overall Group financial debt, contributing to an improvement in the duration of financial borrowing.

The debt/equity ratio at December 31, 2013 reduced to 0.79 (0.97% at December 31, 2012), including the mortgage loans on property acquired.

The net cash position of the Parent Company decreased from Euro 46.4 million to Euro 30.4 million, following the capital injection in favour of the subsidiary BasicItalia S.p.A. to support investment activities. Net debt to third parties reduced 37%.

The contractual covenants on medium/long term loans have been fully complied with.

THE PARENT COMPANY

BasicNet S.p.A. Key Financial Highlights

The parent company condensed income statement compared to the previous year is reported below:

(In Euro thousands) FY 2013 FY 2012 (restated) Changes

Royalties and sourcing commissions 22,933 24,031 (1,098)

Direct sales and other income 8,383 8,683 (300)

EBITDA 8,974 12,412 (3,438)

EBIT 7,183 10,729 (3,546)

Dividends from subsidiaries - 6,000 (6,000)

Investment write-downs - (9,920) 9,920

Net Profit 4,583 2,754 1,829

The results of the separate financial statements of the Parent Company reflect the developments of the overall activity as described within the consolidated financial statements and with specific reference to the activities undertaken on international markets.

Royalties and sourcing commissions of Euro 23 million (Euro 24 million in 2012) reduced due to the exchange rate movements of some local currencies and, for the sourcing commissions, the destocking undertaken by a number of commercial licensees - particularly in the first part of the year.


DIRECTORS’ REPORT

11

Direct sales and other income amount to Euro 8.4 million and decreased by approx. Euro 300 thousand compared to the previous year, principally due to lower sample sales and lower recharges to third parties and contributions, occasionally received in 2012. Other income principally refers to payments for intercompany assistance services charged to BasicItalia S.p.A., Basic Trademark S.A., Superga Trademark S.A. and Basic Village S.p.A., totalling Euro 6.6 million.

Overhead costs increased 9.3% on the previous year, principally relating to a stepping up of the collection development activities initiated in the previous year - impacting personnel costs. In addition, charges were incurred for technical, legal and fiscal consultancy (partly non-recurring).

EBITDA of approx. Euro 9 million reduced 3.4 million on Euro 12.4 million in 2012, due to the changes described above.

EBIT amounted to Euro 7.2 million - following amortisation and depreciation of Euro 1.8 million.

The subsidiary companies did not distribute dividends during the year.

The application of the impairment test on the value of the investments did not result in any adjustments for the year.

The net profit amounted to Euro 4.6 million, after income taxes of Euro 2.1 million.

BasicNet S.p.A. - Condensed Balance Sheet


Non-current assets 5,129 5,417 (288)

Trademarks 8,075 5,862 2,213

Equity investments 36,287 16,715 19,572

Current assets 64,244 83,954 (19,710)

Total Assets 113,735 111,948 1,787

Shareholders’ Equity 72,849 68,359 4,490

Non-current liabilities 8,744 7,217 1,527

Current liabilities 32,142 36,372 (4,230)

Total liabilities and shareholders’ equity

113,735 111,948 1,787

BasicNet S.p.A., as Parent Company, undertakes the centralised Treasury functions.

The value of the investments increased following the capital injection of Euro 19.5 million to support the activities of the subsidiary BasicItalia S.p.A.. At the end of the year BasicNet S.p.A. acquired from the subsidiary Basic Properties B.V., at carrying value, its 10% stake in BasicItalia S.p.A., acquiring full control of the subsidiary.

The net debtor intercompany positions reflects the financial support in favour of the subsidiary.

Medium/long-term loans include contractual clauses, specific guarantees, restrictions on shareholder control, as well as financial and balance sheet covenants. As already noted, the contractual covenants, which refer to the group consolidated figures, have been fully complied with.


DIRECTORS’ REPORT

12

The non-current assets include investments, principally relating to the strategic IT sector, for approx. Euro 2 million, and deferred tax assets, which decreased during the year due to utilisations. The value of tangible and intangible assets are recorded net of amortisation and depreciation for the year of approx. Euro 1.8 million.

The account “trademarks” includes the cost incurred for the acquisition of the K-Way® brand, increasing Euro 2.2 million during the year for the higher price recognised to the liquidator of the bankrupt Formula Sport Group S.r.l..

The Shareholders Equity at December 31, 2013 amounted to Euro 72.8 million (Euro 68.4 million at December 31, 2012).

RECONCILIATION BETWEEN CONSOLIDATED NET PROFIT AND PARENT COMPANY NET PROFIT

The reconciliation at December 31, 2013 between the Parent Company net equity and result and the consolidated net equity and result is reported below.

(In Euro thousands) Net profit Shareholders’ Equity

Financial statements of BasicNet S.p.A. 4,583 72,849

Result and net equity of the consolidated companies (82) (5,319)

Elimination of the dividends received by the Parent Company - -

Reversal of the write-down of the investments in the financial statements of the Parent Company

-

-

Conversion differences and other minor - 85

Group consolidated financial statements 4,501 67,615

THE BASICNET SHARE PRICE

The Share Capital of BasicNet S.p.A. consists of 60,993,602 ordinary shares of a nominal value of Euro 0.52 each.

At the end of 2013 the principal stock markets recovered on the previous year. The Italian Stock Market reported a gain on the previous 12 months of 16.6% on the FTSE MiB (40 largest Italian capitalisation and share liquidity) and of 55.7% for the companies on the FTSE Italia Star (which includes medium-sized companies, with capitalisation up to Euro 1 billion). Against this background, the BasicNet share price performed extremely well, up 70.8%.

The key stock market figures for the years 2013 and 2012 are reported in the following table:

31/12/2013 31/12/2012 SHARE PRICE INFORMATION

Price at year-end 2.320 1.358 Maximum price in year 2.600 2.270 Minimum price in year 1.390 1.352 Price per share/ Net equity per share 2.093 1.324 Total number of shares 60,993,602 60,993,602 Shares outstanding 57,612,315 58,075,844


DIRECTORS’ REPORT

13

On the basis of available information and further communications received as per Consob Regulation No. 11971/99, at the date of the present Report, the largest shareholders in the company were as follows:

(*) Held indirectly through BasicWorld S.r.l., in which it is the largest shareholder with 90.58%, for 36.187% and for the residual 0.292% directly.

THE GROUP AT A GLANCE

The BasicNet Group operates in the causal and sportswear leisurewear, footwear and accessories sector principally through the brands Kappa®, Robe di Kappa®, K-Way®, Superga®, Jesus Jeans®, Lanzera®, AnziBesson® and Sabelt®. Group activities involve driving brand enhancement and product distribution through a global network of licensees. This business network is defined as the “Network”. And from which the name BasicNet derives. The Network of licensees encompasses all key markets worldwide.

BasicNet S.p.A. is the parent company of the Group – with headquarters in Turin – and is listed on the Italian Stock Exchange.

STRENGTHS

The strengths of the Group are founded on the strategic priorities since its inception and which encompass:

1. Brand positioning

2. Business System

3. Web integration

Shareholder Holding

Marco Daniele Boglione (*) 36.479%

Wellington Management Company LLP 10.630%

BasicNet S.p.A. 5.755%

Norges Bank Investment Management 4.990%

Francesco Boglione 4.556%

Golden Step Ltd 2.790%

Market 34.800%


DIRECTORS’ REPORT

14

1. Brand positioning

The Basic Group brands form part of the informal and casual clothing sector, which has experienced significant growth since the 1960’s and continues to develop with the “liberalisation” of clothing trends.

is a practical sportswear brand, serving active and fast-paced individuals, who in their sporting activity require highly-functional clothing, while displaying a youthful, colourful and original look. The Kappa® collections include also footwear and accessories for sport, designed to ensure peak performance. The Kappa® brand sponsors major clubs globally across a wide range of sports, in addition to many national sporting federations, particularly in Italy.

is the brand for those who in their free-time and informal professional activity seek to wear modern, high-quality sportswear at accessible prices. The brand serves energetic, modern individuals, open to an ever-changing world.

is the leisure footwear and accessories brand, designed for those seeking comfort, while demanding a fashionable, colourful and stylish look and high quality. The Superga® collections serve the needs of a wide cross-section of customers, within every age category.

exceptional waterproof clothing: classic, modern, high-technological and functional content and in a wide range of colours. In addition to the original jackets with heat-sealing zips, storable in their pouch and produced with waterproof and wind-protecting warm and breathable materials, the collections include also fashion-oriented clothing and accessories which are identically practical and functional.

is the leading jeans brand, created in 1971 by the youthful Maurizio Vitale and Oliviero Toscani.

is the football clothing and footwear brand. The brand was acquired by the Basic Group primarily as an operating platform for the introduction of the Lanzera® brand into the United States.

is the technical ski brand, dedicated to athletes demanding high quality technical-functional clothing, which maintains design excellence and top class Italian styling. The Group owns 50% of the brand and is the exclusive global licensee.


DIRECTORS’ REPORT

15

is the high-end leisure, sport and formal occasion footwear brand, emerging from the racing and automobile world. The brand is positioned in the fashion segment. Since October 2011, the Basic Group has held 50% of the fashion categories (clothing and footwear) of the brand and is also a global licensee.

2. The Business System

The BasicNet Group has developed around a “network” business model, targeting licensees as the ideal partner for the development, distribution and sourcing of its products globally, choosing partners which act not only as a product supplier, but as an integrated supplier of services, i.e. a business development partner.

Innovative, flexible and modular, the BasicNet Business System has enabled rapid growth, while maintaining a lean and reactive structure: a large enterprise, centred around many associated businesses on a fully web-based Network integrated IT platform and designed to maximise information flows through real-time sharing.

The Business System was drawn up and structured to develop both internal lines (new licensees and new markets) and external lines (new brands developed or acquired and new business lines).

The functioning of the Business System is very simple. The Parent Company BasicNet S.p.A. controls the strategic activities:

o product research and development;

o global marketing;

o Information Technology, i.e. the creation of new software for the online management of all supply chain processes;

o co-ordination of production and commercial activity information flows on the licensees’ Network;

o strategic finance.

Licensees, according to region or goods category, distribute products to retailers, carry out local marketing, regional logistics and working capital funding.

The licensees involved in BasicNet brand finished product management (sourcing centres) apply a similar model and distribute to commercial licensees in their respective areas.

As part of the Business System development, the Group has also established a direct customer sale system, currently developed principally by the Italian licensee (BasicItalia S.p.A.), which is directly held. The retail model is based on the “plug@sell® “ philosophy: a web-based integrated sales management system, with a platform which simply manages all daily activities at the store in real time, from orders to stock management, to accounting and training of staff (pre-opening and ongoing), through class-based and online training.

As part of the BasicItalia S.p.A. Retail project, the various brands have been developed around the three principal retail levels, through which the Group sells directly to the public in Italy:

- (LEVEL I): Brands Stores located in city centres, high streets or shopping centres with specific franchising agreements;

- (LEVEL II): Brand Outlets located in Outlet Villages;


DIRECTORS’ REPORT

16

- (LEVEL III): Discount Stores: located in “out-of-town” commercial or industrial parks.

The formats have been developed in order to ensure presence on a wide range of market segments.

3. Web Integration

The IT platform is one of the major strategic investments for the Group, with a high degree of focus in terms of staffing and centrality to Business System development.

This platform was designed and developed in a fully web integrated manner as the perfect communication tool between Network elements.

The Information Technology department is involved therefore in the design and rolling out of the data collation and transmission systems which link the BasicNet Network companies together and externally.

The business model therefore centres on e-processes, i.e. “.com” divisions - each of which with a production input and exchanging or negotiating with the other divisions, exclusively through the online platform.

STRUCTURE OF THE GROUP

The Basic Group comprises Italian and international operating companies within the following sectors:

- license management (Business System);

- Proprietary licensee;

- Property management.

The Business System operating segment includes the Parent Company BasicNet, the trademark holders of the Group, Basic Trademark S.A. , Superga Trademark S.A., AnziBesson Trademark S.r.l., Fashion S.p.A., Jesus Jeans S.r.l. the services company BasicNet Asia Ltd. in Hong Kong, Basic Properties B.V. in the Netherlands and the sub-licensees Basic Spain S.L. in Spain and Basic Properties America, Inc. in the USA.

In addition to the operations developed directly by BasicNet S.p.A., outlined above, the activities of the other companies concern the granting of the intellectual property rights of the BasicNet Group to licensees, administrating the contracts and managing the relative revenue streams.

The proprietary licensees are BasicItalia S.p.A. and its subsidiaries.

BasicItalia S.p.A. acts as a licensee for the usage and development of the intellectual property rights and of the products of all BasicNet brands for Italy. The company is the licensee and incubator for the testing of Group development projects.

The company holds a number of major sponsorship and merchandising contracts, some of which with international visibility, benefitting also the Group and the Network.

BasicItalia also manages, through its subsidiaries, RdK0 S.r.l. and BasicOutlet S.r.l., Group brand sales points within the franchising project.


DIRECTORS’ REPORT

17

Property management is carried out by Basic Village S.p.A.. The company also owns the former Maglificio Calzificio Torinese production site. Restructured and preserved in 1998, the facilities house the BasicNet Group headquarters and other Group and third party activities.

BUSINESS TARGETS

The Group objective is to extend its global leadership position through the strength of its brands.

The Group project centres on:

- the consolidation and expansion of the brands in areas with a pre-existing presence, supporting the growth of licensees through the Business System;

- extending the territorial coverage of the brands, through finding new qualified licensees - particularly for more recently acquired brands;

- the development of the plug@sell® shops, allowing licensees to improve market presence and to efficiently target end-consumers;

- the search for fresh investment and development opportunities on new markets.

The following chart sets out the organisational structure of the BasicNet Group:

100% 100%100%

100%

100%

100%100%

100%

100% 100%

BASICNETS.p.A.

BASIC PROPERTIES BV

BASICITALIA S.p.A.BASIC VILLAGE

S.p.A.BASICNET ASIA

Ltd.JESUS JEANS S.r.l.

BASICOUTLET S.r.l.

RdK0 S.r.l.

SUPERGA TRADEMARK S.A.

BASICTRADEMARK S.A.

BASIC PROPERTIES AMERICA, Inc.

BASIC SPAIN S.L.

ANZIBESSON TRADEMARK S.r.l

50%

100%

BASICCRS S.r.l.

100%

FASHION S.p.A.

50%


DIRECTORS’ REPORT

18

HUMAN RESOURCES

At December 31, 2013, the Group headcount was 512, as follows:

Human resources at December 31, 2013


Category Number Average age Number Average age

Male/Female Total Male/Female Average Male/Female Total Male/Fe

male Average

Executives 12 / 8 20 49 / 49 49 12 / 8 20 48 / 48 48

Managers 1 / - 1 51 / 51 51 1 / - 1 50 / - 50

White-collar 144 / 319 463 34 / 36 36 153 / 358 511 33 / 36 35

Blue-collar 15 / 13 28 43 / 42 42 18 / 15 33 41 / 42 42

Total 172 / 340 512 35 / 36 36 184 / 381 565 35 / 36 35

Source: BasicGuys.com

The reduction in employee numbers stems from normal turn-over, particularly in the second half of the year. The average number of employees in 2013 was 538, comprising 20 executives, 1 senior manager, 487 white-collar employees and 30 blue-collar employees.

The “BasicEducation” project continues to successfully train franchising employees and update the skills of Group employees, with a total of:

637 online distance training hours (without tutor);

1,416 classroom training hours and 792 store-based training hours;

515 individuals trained (employees and franchisees).

Since 2004, the Group has introduced a number of initiatives to improve the work-life balance of employees: the creation of the “Banca-ore” (time bank) which facilitates flexible over-time management, reversible part time for workers with small children, the “BasicCare” desk handling payments to employees and routine commissions and the “BasicGym” which organises gymnastics courses for Group employees and partners.

In February 2012, BasicNet signed a memorandum of understanding with the Turin Municipality, under which all Basic Group employees may utilise the services of TorinoFacile, the online City services provider, without therefore leaving their work station. The corporate website www.basic.net in fact allows employees to be recognised through their log-in details, without entering their tax code or other service access passwords, to request personal and civil status certificates, on their own behalf or for members of their nuclear family, or to book an appointment with the municipal technical offices.

The maintenance of workplace health and safety are values shared by all employees. In support of this commitment, the Parent Company and its subsidiaries prepared the “Risk evaluation document” in accordance with Legislative Decree No. 81/2008.

INFORMATION ON THE ENVIRONMENT

Protecting the environment represents a key factor for the competitiveness and sustainability of the Group. This respect for the environment is firstly undertaken through compliance with regulatory requirements. Through the web integration, since 1999 the Group’s primary objective is to avoid the use of paper: in fact the IT platform is the only communication instrument between the elements within the Network, from procedural controls, to HR management, thus reducing paper consumption to minimal levels. The Group


DIRECTORS’ REPORT

19

also utilises a scanner archive system throughout the operating cycle, for the majority of accounting records and ledgers and payroll management.

PRINCIPAL RISKS AND UNCERTAINTIES

The BasicNet Group is subject to a variety of strategic, market and financial risks, as well as general business operational risks.

Strategic risks These risks arise from factors that may comprise the value of the trademarks that the Group implements through its Business System. The Group requires the capacity to identify new business opportunities and markets and appropriate licensees for each market. The Group monitors the activities of its licensees and detects any problems on-line in the management of the brands in the various regions.

Risks associated with economic conditions The Group retains that its Business System has the flexibility needed to swiftly respond to changes in customers’ tastes and to limited and localised consumer slowdown. However, the Group may be exposed to economic crisis and social and general unrest, which may impact on consumer trends and the general economic outlook.

Currency risk The Group is exposed to currency risk on merchandise purchases or royalty income and sourcing centre commissions not within the Eurozone. These transactions are mainly in US Dollars and marginally in UK Sterling and Japanese Yen. The risks on fluctuations of the US Dollar on purchases are measured, preliminary, in the preparation of the budgets and finished products price lists, so as to adequately cover the impact of these fluctuations on sales margins. Subsequently, royalty income and sourcing commissions from sales are utilised to cover purchases in foreign currencies, within the normal activities of the Group centralised treasury management. For the foreign currency purchases not covered by foreign currency receipts, or in the case of significant time differences between receipts and payments, forward purchase and sales contracts are underwritten. The Group does not undertake derivative financial instruments for speculative purposes.

Credit risk Group trade receivables derive from licensee royalty income, sourcing centre commissions billed and sales of finished products. Royalty trade receivables are largely secured by bank guarantees, letters of credit, guarantee deposits, or advance payment, provided by licensees. Souring commission receivables are covered by the payables of the subsidiary company BasicItalia S.p.A. to the sourcing centres. Receivables from Italian footwear and apparel retailers within the subsidiary BasicItalia S.p.A. are monitored continually by the credit department of the company alongside specialised legal recovery firms and regional credit bodies throughout the country, commencing from the customer order. Receivables from franchising brand stores are settled weekly in line with sales and are of a limited insolvency risk.

Liquidity risk The sector in which the Group operates is exposed to seasonal factors, which impact upon the timing of goods procurement compared to sales, in particular where the products are acquired on markets with favourable production costs and where the lead times are much longer. These seasonal factors also impact upon the Group’s financial cycle of the commercial operations on the domestic market. Medium/long-term loans are subject to equity and financial clauses (covenants), which must be complied with or the loan facility may be withdrawn. The covenants have been complied with. Short-term debt to finance working capital needs comprises “import financing” and “self-liquidating bank advances” secured by the order backlog and the export account. The Group manages the liquidity risk through close control on operating working capital with specific attention on inventories, receivables, trade payables and treasury management, with real-time operational reporting indicators or, for some information, at least on a monthly basis, reporting to Senior Management.


DIRECTORS’ REPORT

20

In relation to the liquidity risk associated with the Tax Investigations, reference should be made to the paragraph below “risks relating to legal and tax disputes”.

Interest rate risk The interest fluctuation risks of some medium-term loans were hedged with conversion of the variable rate into fixed rates.

Risks relating to legal and tax disputes The Group may be involved in legal and tax disputes, concerning specific issues and in various jurisdictions. Considering the uncertainties relating to these issues, it is difficult to predict with certainty any future payments required. In addition, the Group has instigated legal action for the protection of its Trademarks, and of its products, against counterfeit products. The cases and disputes against the Group often derive from complex legal issues, which are often subject to varying degrees of uncertainty, including the facts and circumstances relating to each case, jurisprudence and differing applicable laws. In the normal course of business, Management consults with its legal consultants and experts on legal matters. The Group accrues a liability against disputes when it considers it is probable that there will be a financial payment made and when the amount of the losses arising can be reasonably estimated. The principal disputes involving the Company are described in Explanatory Notes 19 and 48 of the Consolidated Financial Statements and are summarised below. A.S. Roma contract termination The dispute was taken by BasicItalia S.p.A. against A.S. Roma S.p.A. and Soccer S.a.s. Brand Manager S.r.l. which on November 23, 2012 communicated the unilateral advance resolution of the team sponsorship, agreed with duration until June 30, 2017, for presumed non-compliance and, in particular, defects in the materials supplied. BasicItalia S.p.A., considering the reasons for the resolution unfounded, instigated an ordinary court procedure requesting compensation for significant damage incurred. A.S. Roma S.p.A. and Soccer S.a.s. appealed against the request of BasicItalia S.p.A. and counterclaimed requesting compensation for presumed damage. The procedure is still in the initial phase.

Subsequent to the above-mentioned resolution of the contract, A.S. Roma sought payment on the sureties granted by BNL S.p.A. on behalf of BasicItalia S.p.A. for a maximum amount of Euro 5.5 million, which guaranteed commitments undertaken by BasicItalia S.p.A. in accordance with the sponsorship contract. Following the non-payment by BNL S.p.A., A.S. Roma presented an appeal before the Rome Court to obtain judgment against BNL for the payment of the entire amount guaranteed. On the completion of this procedure, in which BasicItalia S.p.A. (together with the parent company BasicNet S.p.A.) was called to provide a guarantee by BNL, the Rome Court with order dated December 7, 2013, rejected all the demands of A.S. Roma considering the enforcement illegal. A.S. Roma did not contest this order and the relative period for appeal has lapsed.

Finally, we report that BasicItalia S.p.A. presented, also to the Rome Court, an injunction decree in order to attain from Soccer S.a.s. di Brand Manager S.r.l. the payment of invoices issued for the supply of technical material delivered during 2013, amounting to approx. Euro 1.6 million. Following the granting of the injunction decree, Soccer S.a.s. di Brand Manager S.r.l. appealed the decision and the relative procedure, which BasicItalia contested.

Tax Administration Investigation As already reported in the Directors’ Report, in December 12, an agreement was reached with the Tax Administration by the subsidiary Basic Trademark S.A., in relation to the tax position for the year 2006, extended during 2013 also to Superga Trademark S.A., for the years 2007 and 2008, for BasicNet S.p.A for the years 2007 and 2009 and for BasicItalia S.p.A. for the years 2007, 2009 and 2010. These agreements are within the framework of an overall settlement of the fiscal position of some foreign subsidiaries of BasicNet S.p.A. (Basic Trademark S.A., Superga Trademark S.A. and Basic Properties B.V.), in part involving the Italian holding, which has still to be formalised but whose financial impact has been prudently fully expensed in the previous year.


DIRECTORS’ REPORT

21

From a financial viewpoint, the amounts – accepted and to be finalised - benefit from the payment over three years, commencing from the first payment date and therefore partly settled. The payment through instalments permits compliance with the maturities through the generation of cash from operating activities.

SUBSEQUENT EVENTS TO THE YEAR-END AND OUTLOOK

As part of the international development of the Brands, in the initial months of 2014 for the Kappa® and Robe di Kappa® brands, agreements for the Middle East market (Saudi Arabia, United Arab Emirates, Bahrain, Oman, Qatar and Kuwait) were renewed, while for the Superga® brand a license was granted for Mexico.

Operating results are again expected to improve in the first half of 2014 based on the order book for H1 2014, the margin recovery actions taken in Italy and the forecast royalties and sourcing commissions.

This outlook remains subject to exchange rate movements - both in terms of the depreciation of a number of central currencies for the Group and, in general, a strengthening of the Euro - in addition to consumer confidence levels which continue to remain weak, particularly on a number of core markets.

In comparing the outlook for the first part of the year with the previous year “other income” in Q1 2013 should be considered non-recurring, with the comparative differential expected to be gradually returned over subsequent quarters in 2014.

* * *


DIRECTORS’ REPORT

22

PROPOSAL TO THE SHAREHOLDERS’ MEETING FOR THE ALLOCATION OF THE NET PROFIT FOR THE YEAR

Financial Statements as at December 31, 2013, Directors' Report. Resolutions thereon.

Dear Shareholders,

in the presentation for the approval of the Shareholders’ AGM for the 2013 Financial Statements and the relative Directors’ Report we propose the allocation of the net profit of Euro 4,583,030.11 as follows:

- to the Legal reserve Euro 229,151.51

- to retained earnings for the residual amount, equal to Euro 4,353,878.60

Turin, March 21, 2014

for the Board of Directors

The Chairman

Marco Daniele Boglione


DIRECTORS’ REPORT

23

.

OTHER INFORMATION

TREASURY SHARES Under the treasury share buy-back programme, authorised by the Shareholders’ AGM of April 29, 2013 and concluding at the date of the Shareholders’ AGM for the approval of the 2013 Annual Accounts, the company purchased until the date of today’s Board meeting 158,319 shares, amounting to 0.26% of the Share Capital. At the date of the report, BasicNet holds a total of 3,510,000 treasury shares (5.75% of the Share Capital), for a total investment of Euro 5,879,970. The Company intends to continue the share buy-back programme in 2014 and proposes to the Shareholders’ Meeting to renew the authorisation. The proposal is submitted in order to provide the Company with a instrument to assist current operations, allowing investment in treasury shares where stock market developments or the amount of liquidity at hand would render such beneficial, or as part of projects developed upon the strategic guidelines under which share swap opportunities are presented or within financial operations. STOCK OPTION PLANS At the date of the present Report there are no stock option plans. SHARES HELD BY DIRECTORS AND STATUTORY AUDITORS The shares held by the Directors and Statutory Auditors are reported in the Remuneration Report, available together with the documentation for the 2014 Shareholders’ AGM on the website www.basicnet.com, to which reference should be made. TRANSACTIONS WITH HOLDING COMPANIES, ASSOCIATES, OTHER INVESTMENTS AND RELATED PARTIES The transactions with related parties are not atypical or unusual and form part of the ordinary business activities of the companies of the Group. These transactions were at normal market conditions. The information on transactions with related parties are presented in Note 41 of the financial statements. The operations between Group companies, which substantially involve the purchase of goods and provision of services, under normal market conditions, are not of an atypical or unusual nature, but within the normal business activities of the companies of the Group and are eliminated on consolidation. The effects deriving from transactions between BasicNet S.p.A. and its subsidiaries are reported in the financial statements of the Parent Company and in the explanatory notes to the financial statements. On October 29, 2010, the Board of Directors approved the procedure for transactions with related parties, which are summarised in the Corporate Governance and Ownership Report. The procedure is also available in its full version on the internet site of the Group (www.basicnet.com in the section “Corporate Governance BasicNet”). Governance of subsidiaries outside of the European Union In accordance with Article 39 of the Market Regulations issued by Consob, with reference to the “Conditions for the listing of the shares of holding companies and pursuant to laws of states not forming part of the European Union” as per Articles 36 and 37 of the Regulation, based on the figures of the financial statements at December 31, 2013 and in application of the significant parameters for the purposes of the consolidation, identified as per the provisions of chapter IV, paragraph II of the Issuers’ Regulation: the subsidiary Basic Properties America, Inc. with registered office in Richmond (Virginia) is governed by the above-mentioned regulation. The subsidiaries with registered office in states outside of the European Union have complied with the provisions of Article 36 of the Market Regulations, and therefore the companies Basic Properties America, Inc. and BasicNet Asia Ltd. The accounting records, by-laws, list of powers of delegated bodies are filed at the registered office of BasicNet for public inspection. The composition of the Board of Directors of the companies is available on the website www.basicnet.com/group/boards.


DIRECTORS’ REPORT

24

RESEARCH & DEVELOPMENT The Group research and development activity is based on two pillars: product research on the development of casual and leisurewear sportswear and footwear together with all

the related activity, from material sourcing, creative styling and design, production specification, prototype and sample creation;

IT research in terms of electronic data processing and transmission systems through the internet platform interconnecting Network licensees and externally, to develop all the opportunities arising concerning new technologies to speed up data transfer and therefore business efficiency.

Product research costs are expensed in the year in which they generate revenues from sales, or royalties from the relative collections. IT development costs, mainly product development software produced by external consultants under the supervision of internal staff, are capitalised and amortised over 5 years from when the programmes become operative. CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE REPORT The Corporate Governance and Share Ownership Report, hereafter summarised, is available in its full version on the Group website (www.basicnet.com in the section “BasicNet Corporate Governance). 1. COMPANY PROFILE BasicNet S.p.A. is managed by a Board of Directors, which has set up the Internal Control Committee

and the Remuneration Committee and oversight is provided by the Board of Statutory Auditors. The powers and duties of these bodies are governed by the Civil Code, by special applicable laws and by the Company By-Laws. These Boards are elected by the Shareholders’ Meeting and remain in office for three years.

The financial statements are audited by an audit firm in accordance with the provisions of law. The Shareholders’ Meetings represent all of the Shareholders who resolve, in ordinary and

extraordinary session, on the matters required by law and by the Company By-Laws. The Governance of the Company also includes the Internal Control System, the Ethics Code, as well as the assignment of executive powers and the organisational structure.

2. DISCLOSURE ON THE OWNERSHIP STRUCTURE AT MARCH 21, 2014 (as per Article 123-bis, paragraph 1, of the CFA)

a) Share Capital (as per Article 123-bis, paragraph 1, letter a), CFA)

The Share capital, fully subscribed and paid-in, amounts to Euro 31,716,673.04 and is comprised of 60,993,602 ordinary shares with a value of Euro 0.52 each.

At the date of the present Report, the Company holds 3,510,000 treasury shares, equal to 5.75% of the share capital.

The Company has not issued other financial instruments that attribute the right to subscribe to new share issues.

No share-based incentive plans have been introduced which would resulted in an increase, including through scrip issues, of the share capital.

b) Restriction on the transfer of shares (as per Article 123-bis, paragraph 1, letter b), CFA)

At the date of the present Report, there are no restrictions on the transfer of shares.


DIRECTORS’ REPORT

25

c) Significant holdings (as per Article 123-bis, paragraph 1, letter c), CFA)

Based on the communications received in accordance with Article 120 of the CFA, the Shareholder Register and the information available following communications made by Shareholders, at the date of the present Report, the shareholders with significant shareholdings are as follows:

d) Shares which confer special rights (as per Article 123-bis, paragraph 1, letter d), CFA)

There are no securities which confer special control rights. e) Employee shareholdings: voting mechanism (as per Article 123-bis, paragraph 1, letter e), CFA)

There is no share participation programme for employees. f) Voting restrictions (as per Article 123-bis, paragraph 1, letter f), CFA)

There are no restrictions on voting rights. g) Shareholder agreements (as per Article 123-bis, paragraph 1, letter g), CFA)

At the date of the present Report, there are no agreements between Shareholders. h) Change of control clause (as per Article 123-bis, paragraph 1, letter h), CFA) and statutory

provisions on takeovers (as per article 104, paragraph 1-ter and 104-bis, paragraph 1).

The contractual conditions of the loans in place at the date of the present Report include typical clauses for such loans, such as the maintenance of some conditions of control of the Company. In particular:

the loan received in 2007 for the acquisition of the Superga® brand, for the original amount of Euro

19 million provides for the following clauses relating to the ownership of the share capital of BasicWorld S.r.l., a company holding 36.187% of the Share Capital of BasicNet S.p.A., the main shareholder of the company:

- the maintaining by Marco Daniele Boglione (either directly or indirectly), of at least 51% of the share capital of BasicWorld S.r.l.;

- that the total shareholding, direct or indirect, of BasicWorld S.r.l. in the share capital of BasicNet S.p.A., is not below 30% in the company or, in any case, a shareholding representing the majority of shares with voting rights of the Company.

Shareholder

Direct shareholder

Holding of ordinary

share capital

Holding of voting share

capital

Marco Daniele Boglione BasicWorld s.r.l. 36.187% 36.187%

Marco Daniele Boglione Marco Daniele Boglione 0.292% 0.292%

Total 36.479% 36.479%

Wellington Management Company LLP Wellington Hedge Management LLC 5.010% 5.010%

Wellington Management Company LLP Wellington Global Holdings Ltd. 5.620% 5.620%

Total 10.630% 10.630%

BasicNet S.p.A. BasicNet S.p.A. 5.755% 5.755%

Norges Bank Investment Management Norges Bank Investment Management 4.990% 4.990%

Francesco Boglione Francesco Boglione 4.556% 4.556%

Golden Step Ltd. Golden Step Ltd. 2.790% 2.790%


DIRECTORS’ REPORT

26

In the event of the non-compliance of the above-mentioned clauses (except on the correction of any non-compliance within thirty days from either the communication of the Agent Bank relating to the non-compliance and the date in which the company is aware of the non-compliance), the lender has the right to implement the contractual remedies, including the termination of the contract, the resolution of the contract and the termination of the maturity repayment periods. The loan will mature on July 16, 2015.

the loan received in June 2013 from Ubi Banca, totalling Euro 7.5 million, provides the Bank with

the right to request full repayment where there is a change in control of the company. The loan will mature on December 27, 2016.

Statutory provisions in relation to Takeovers

The Extraordinary Shareholders’ Meeting of April 29, 2011 approved, among other matters, the change to Article 16 of the Company By-Laws – Powers of the Board of Directors and legal representation – in order to recognise to the Board of Directors the right to undertake, at any moment and without prior authorisation of the Shareholders’ Meeting, defensive measures in the case of public offers or exchanges, pursuant to Article 104 of the CFA, as amended by Article 1 of Legislative Decree No. 146 of September 25, 2009. In particular Article 16 includes two paragraphs as follows: “the Board of Directors, and any Executive Boards, also have the right to undertake, without a

Shareholders’ Meeting authorisation, all acts and operations against the objectives of a public share or exchange offer, from the moment in which the communication in which the decision or the obligation arises to promote the offer was made public until the termination or expiry of the offer”.

“the Board of Directors, and any Executive Boards, also has the right to implement decisions, not yet implemented in full or in part and which are not within the scope of the normal activities of the company, undertaken before the communication as described above and whose implementation could negate the achievement of the objectives of the offer”.

(i) Power to increase the share capital and authorisation to purchase treasury shares (as per Article

123-bis, paragraph 1, letter a), CFA)

- Powers to increase the Share Capital

The Board of Directors do not have powers to increase the Share Capital pursuant to Article 2443 of the Civil Code.

- Powers as per the Civil Code

The Board of Directors do not have any powers to increase the Share Capital pursuant to Article 2420-ter of the Civil Code.

- Authorisation of share buy-back plan

The Shareholders’ Meeting of April 29, 2013 approved, for a period of twelve months, or until the next Shareholders’ AGM to approve the 2013 Annual Accounts, the authorisation to purchase and utilise a maximum number of shares, which taking into account those already held by the Company, does not exceed the limits permitted by law, for a maximum expected financial commitment of Euro 5 million. Based on this authorisation the Company, at the date of the Report, acquired 158,319 shares equal to 0.26% of the Share Capital, at an average price of Euro 1.84, with a total payment of Euro 291,844. BasicNet today holds a total of 3,510,000 treasury shares (5.75% of the Share Capital), for a total investment of Euro 5,879,970.

l) Direction and co-ordination activities (as per Article 2497 of the Civil Code)

BasicNet S.p.A. is not subject to management and coordination pursuant to Article 2497 and thereafter of the Civil Code and has full authority to implement its general and operating strategies.


DIRECTORS’ REPORT

27

BasicNet S.p.A. considers that it is not subject to the management and coordination of BasicWorld S.r.l., a company which holds 36.187% of the Share Capital, as there are no rules which permit the limitation of independent decisions of BasicNet S.p.A., either in contractual form or through organisational procedures.

Pursuant to Article 2497-bis of the Civil Code the directly and indirectly held Italian subsidiaries have identified BasicNet S.p.A. as the party which exercises management and coordination of their activities. This activity involves oversight of the general strategic directives and in the definition and amendment of the Internal Governance and Control model, and the sharing of the Ethics Code adopted at Group level. In addition, the Group coordination involves the central management within BasicNet S.p.A. of the treasury, personnel, corporate, control and Information Technology services.

These activities permit both economies scale and adequate coordination and operational control. m) Other information

It is noted that: the disclosures required by Article 123-bis, paragraph 1, letter 1) (“the agreements between the

company and the directors – which provide for indemnity in the case of dismissal without just cause or in the case in which employment ceases after a public offer”) are contained in the remuneration report pursuant to Article 123-ter of the CFA, available on the company’s website www.basicnet.com (in the section Shareholders’ Meeting/2014);

the disclosures required by Article 123-bis, paragraph 1, letter l) of the CFA (“applicable regulations concerning the appointment and replacement of directors, in addition to the amendment of the by-laws if differing from applicable law and regulations) are illustrated in the Board of Directors section (Section 4.1).

3. COMPLIANCE (as per Article 123-bis, paragraph 2, letter a), CFA)

The Corporate Governance system adopted by BasicNet S.p.A. incorporates the rules and procedures within the Company’s By-Laws and provisions of law, which outlines the system of management and control of the Company and of the Group.

This is mainly based on the principles and recommendations contained in the Self-Governance Code of listed companies issued by Borsa Italiana, available on the website Borsa Italiana (www.borsaitaliana.it ). The Annual Report, which is published on the website www.basicnet.com (in the section “Corporate Governance BasicNet”) illustrates the Governance structure of the Group, as well as the level of compliance of the corporate governance system with the recommendations of the Self-Governance Code issued by Borsa Italiana S.p.A, indicating any principles or applicative criteria not applied as considered not in line with the organisation and management structure. BasicNet, nor its strategic subsidiaries, are subject to laws in force outside Italy which affect the corporate governance structure.

4. BOARD OF DIRECTORS 4.1. APPOINTMENT AND REPLACEMENT (as per Article 123-bis, paragraph 1, letter l), CFA)

The norms applied in the appointment and replacement of the Directors are in line with legislative and regulatory provisions and Article 13 of the Company By-Laws, in relation to which reference should be made to the company’s website www.basicnet.com (in the section “Corporate Governance BasicNet/By-Laws).


DIRECTORS’ REPORT

28

The Company is administered by a Board of Directors, made up of between five and fifteen members, including non shareholders. The Shareholders’ Meeting, before their appointment, establishes the number of members of the Board of Directors and the duration of office in accordance with that permitted by law. The procedure for appointment as per Article 13 provides: for filing, at the registered office of the Company, within the terms required by regulatory

provisions, of the slates of candidates with indication of the shareholders presenting the candidates and the overall shareholding held, together with disclosure on the personnel and professional details of the candidates;

that the minority shareholders that either alone, or together with other shareholders, holding voting rights not lower than that required by current regulations, will be reserved the appointment of one Director. For 2014, as in previous years, this percentage was 4.5% (Consob Resolution No. 18775 of January 29, 2014);

that the procedure for electing the Directors shall be as follows: i) from the slate which obtained the highest number of votes, based on the progressive order with which they are listed in the slate, all the members necessary are elected to fill the number of Directors established for the Shareholders’ Meeting, except 1; ii) from the slate which obtained in the Shareholders’ Meeting the second highest number of votes one member is elected of the Board of Directors as the first candidate on this slate;

consideration is not taken of the slates which have not obtained at least the number required by the Company By-Laws for the presentation of the slates;

should two slates receive the same number of votes, a second vote of the entire Shareholders’ Meeting is taken to decide between them with the candidate being elected through a simple majority of the votes. In the case of presentation of only one slate, or in the case of no slate presented, the Shareholders’ Meeting deliberates in accordance with the statutory majority.

The Board of Directors in office was appointed by the Shareholders’ Meeting of April 29, 2013. The only proposal was presented by the shareholder BasicWorld S.r.l., holder of 36.187% of the ordinary shares. BasicNet is not subject to other regulations, concerning the composition of the Board of Directors, other than those contained in the CFA.

4.2. COMPOSITION (as per Article 123-bis, paragraph 2, letter d), CFA)

The mandate of the Board of Directors in office, appointed by the Shareholders’ AGM of April 29, 2013, will conclude with the Shareholders’ AGM for the approval of the 2015 Annual Accounts, and is comprised of ten members: Marco Daniele Boglione (in office since 1984), Chairman, Daniela Ovazza (in office since 1994), Vice Chairman, Franco Spalla (in office since 2001), Chief Executive Officer, Paola Bruschi (in office since 2007), Paolo Cafasso, (in office since 1995), Giovanni Crespi (in office since 2007), Alessandro Gabetti Davicini (in office since 2010), Adriano Marconetto (in office since 2007), Carlo Pavesio (in office since 1994), Elisabetta Rolando (in office since 2013), Directors. The Board of Directors complies with the “gender quota” of one fifth as per Consob Regulations and Article 13 of the Company By-Laws, implementing the requirements of the regulation in 2011. The curriculum vitaes of the Directors in office are available on the website of the company www.basicnet.com in the section Group/Corporate Boards.


DIRECTORS’ REPORT

29

They hold executive offices also in other Group companies. In particular:

Marco Daniele Boglione: Chairman of Basic Trademark S.A., Chairman of Superga Trademark S.A., Executive Director of Fashion S.p.A., Chairman of BasicItalia S.p.A., Chairman of Jesus Jeans S.r.l.;

Franco Spalla: Chairman of Basic Properties B.V., Chairman of BasicNet Asia Ltd., Chief Executive Officer of Jesus Jeans S.r.l., Chief Executive Officer of AnziBesson Trademark S.r.l., Chief Executive Officer of Fashion S.p.A., Director of BasicItalia S.p.A., Director of Basic Properties America, Inc., Director of Superga Trademark S.A., Director of Basic Trademark S.A., Director of the Italian administrative offices of Superga Trademark S.A. and Basic Trademark S.A.;

Paolo Cafasso: Chief Executive Officer of Basic Village S.p.A., Chairman of Basic Spain S.L., Director of Basic Properties B.V.;

Paola Bruschi: Director of Basic Village S.p.A;

Elisabetta Rolando Chairman of BasicItalia S.p.A., Sole Director of RdK0 S.r.l., Sole Director of BasicOutlet S.r.l., Sole Director of BasicCRS S.r.l.

The Board of Directors includes two Independent Directors: Giovanni Crespi and Adriano Marconetto.

Other offices

In addition to the offices held by the Executive Directors in the Group companies described above, the other offices held by the Directors in other listed companies or significant companies are listed below:

- Marco Daniele Boglione: Director of BasicWorld Srl; Director of the Piedmont Foundation for Cancer Search; Director of the Piedmont Oncological Foundation;

- Daniela Ovazza: Director of TESA S.p.A; Non-Executive Director of C.L.S. S.p.A., Director of CGT Truck S.p.A;

- Giovanni Crespi: Independent Director of Innovest S.p.A.; Director of Sirti S.p.A., Director of BasicItalia S.p.A., Director of HIIT S.p.A., Director of UnoPiù S.p.A.;

- Alessandro Gabetti Davicini: Director Fenera Holding S.p.A , Chief Executive Officer Fenera Equity Investments S.r.l., Director Tosetti Value S.r.l., Director SDM S.r.l., Sole Director Pantarei S.r.l.;

- Adriano Marconetto: Executive Chairman ProxToMe Inc.;

- Carlo Pavesio: Chairman of the Board of BasicWorld S.r.l., Non-Executive and Independent Director, member of the Remuneration Committee and Supervisory Board – Pininfarina S.p.A., Non-Executive and Independent Director, Chairman of the Internal Control Committee, Chairman of the Supervisory Board and member of the Group Investment Commission of Reale Mutua Assicurazioni S.p.A., Non-Executive and Independent Director, Chairman of the Remuneration Committee of Fenera Holding S.p.A., Director of Fratelli Gancia & C. S.p.A., Vice Chairman and Director of Farmaceutici Procemsa S.p.A, Director of Tosetti Value SIM S.p.A., Director of BasicItalia S.p.A., Director of Banca Reale S.p.A., Member of the Supervisory Board of the Piedmont Oncological Foundation;

- Franco Spalla: Director of INTEK GROUP S.p.A.


DIRECTORS’ REPORT

30

Maximum number of offices held in other companies

The Board did not express an opinion on the maximum number of offices of Director or Statutory Auditor held in other listed companies (including abroad), in financial, banking and insurance companies or of a significant size which can be considered compatible with the undertaking of the office of Director, in that they consider that the assessment in relation to commitments deriving from any other offices in the afore-mentioned companies should be the remit of the individual members of the Board of Directors in relation to their respective availability.

Induction Programme

The Directors, in practice, have the facility to participate in meetings subsequent to their appointment and during their mandate with the Chairman and Management, in order to remain updated on corporate affairs and relevant changes. They also continually have access to financial and operational information from the BasicManagement portal.

4.3. ROLE OF THE BOARD OF DIRECTORS (as per Article 123-bis, paragraph 2, letter d), CFA)

With the exception of the exclusive remit concerning the powers as per the fourth paragraph of Article 2381 of the Civil Code, the Board of Directors:

a. reviews and approves the strategic, industrial and financial plans of the Company and of the

Group, defines the organisational structure of the Companies of the Group and the corporate governance system of BasicNet;

b. annually verifies the mapping of the corporate risks and their control. This activity seeks to evaluate the risk in defining the development potential of the Group;

c. evaluates the adequacy of the organisational, administration and accounting system of the Company and of its subsidiaries with strategic importance, which has been implemented by the Executive Directors with particular reference to the internal control and risk management system. In addition to the companies holding the brands, the strategic companies are BasicItalia S.p.A., which is the Italian licensee of the Group, Basic Village S.p.A., a property company which manages the buildings and BasicNet Asia Ltd., a company which provides services throughout Asia, principally monitoring the sourcing centre activities, and the sub-licencee company Basic Properties America, Inc.;

d. assigns and revokes the delegation of powers to the Executive Directors, establishing the limits and manner of exercising such power and the frequency of reporting, normally not less than three months, through which the Executive Directors must report to the Board on the activities undertaken in relation to the powers conferred, in accordance with Article 13 of the Company By-Laws;

e. establishes, after examining the proposals of the specific Remuneration Committee and after having consulted with the Board of Statutory Auditors, the fee to be paid to the Executive Directors and those who hold specific posts, as well as dividing the total fees to which the directors are entitled among the individual members of the Board, if this has not already been decided by the Shareholders’ Meeting;

f. evaluates the general operational performance, taking into account, in particular, the information received from executives, as well as periodically comparing the results with the budgets;

g. examines and approves the company and its subsidiaries’ operations prior to being carried out, when these operations have a significant strategic, economic, or financial importance for the Company, paying particular attention to the situations in which one or more directors have an interest on their own behalf or on behalf of third parties, and, in general, transactions with


DIRECTORS’ REPORT

31

related parties. All the strategic and extraordinary operations are examined by the Board of Directors;

h. undertakes, at least once a year, an evaluation on the size, on the composition and on the functioning of the Board and on the Committees, expressing opinions on professional appointees to the Board;

i. prepares and adopts the Corporate Governance rules of the Company and defines the Group Corporate Governance guidelines and annually provides information on their application.

Article 16 of the Company By-Laws attributes to the Board the powers to deliberate on the incorporation and spin-off from the Company, in the cases permitted by law, transfer of the registered office within the national territory and the setting up and closure of secondary offices, appointing legal representation among the Directors, amendments to the By-Laws as permitted by regulations, and the reduction of share capital, in the case of withdrawal of a shareholder. In addition, in accordance with the first paragraph of Article 2410 of the Civil Code, the Board of Directors may approve the issue of bonds.

The Board of Directors, in coordination with the activities undertaken by the Control and Risks Committee, evaluated the organisational, administration and general accounting structure of BasicNet S.p.A. and its strategic subsidiaries with particular reference to the internal control and risk management system and the management of conflicts of interest. Continuity in the composition of the Board of Directors of the companies of the Group facilitates, in fact, those functions of control, timely disclosure and coordination of instructions to the subsidiaries. In addition, in accordance with Article 13 of the Company By-Laws, the Executive Boards report to the Board of Directors and to the Board of Statutory Auditors, at least quarterly, in the meetings of the Board of Directors, or through written report to the Board of Directors and to the Board of Statutory Auditors, on the operational performance and on the outlook, providing comparison, on a quarterly basis of the results with budget, as well as on the most significant operations, for both size and characteristics, undertaken by the company and its subsidiaries, in particular with reference to operations in which they have an interest, either on their own behalf or on behalf of third parties. In general any significant operation, such as acquisitions, sales, new sponsorship, sureties, guarantees, derivative financial operations, are presented to the Board of Directors.

In 2013, six Board meetings were held, of an average duration of two hours, to discuss the quarterly results, the half-year report, the approval of the Annual Accounts and to delegate powers to the new members of the Board of Directors and determine remuneration.

The documentation necessary for the meeting is generally transmitted to the Directors and Statutory Auditors at least two days before the meetings (a period considered appropriate by the Board of Directors).

In January 2014, the company published its financial calendar which established the days for the four Board meetings for the approval of the 2013 separate and consolidated financial statements and the approval of the interim results.

The Board of Directors meeting of March 21, 2014 assessed the activities undertaken since its mandate, considered the constant presence of all Directors at the meetings, as well as the important contributions to the discussions, also of a professional nature and considered that the size, composition and function of the Board was appropriate to achieving the objectives of BasicNet S.p.A. and of the Group. The clarity and timeliness of the information prepared by the Chairman and the Chief Executive Officer concerning Board meetings, as well as the periodic updating on regulatory provisions and duties of the Directors, enabled the Directors to undertake their duties in a knowledgeable and informed manner. The number of Executive and Non-Executive Directors is also considered appropriate.

The Shareholders’ AGM of April 29, 2013, on the appointment of the Board, permitted the Directors elected not to be restricted by a non-competitive clause, as per Article 2390 of the Civil Code, in consideration of the fact that they may cover similar offices in companies which undertake similar activities.


DIRECTORS’ REPORT

32

The Directors are however requested, both on the acceptance of office and during the period of their office and thereafter, to report timely appointments in competing groups.

4.4. EXECUTIVE BODIES

The Board meeting of April 29, 2013 delegated powers:

- to the Chairman, Marco Daniele Boglione, all powers for ordinary and extraordinary administration with sole signature, within a limit of Euro 3 million for the acquisition and/or sale of quotas or shares in companies, enterprises, business units or brands, Euro 5 million with reference to the annual cost of sponsorship contracts, 75% of the consolidated net capital of the Company, in relation to financing operations and Euro 2.75 million for the granting of all secured and unsecured guarantees and patronage letters (with the exception of the subsidiary companies);

- to the CEO, Franco Spalla, all powers for ordinary and extraordinary administration with sole signature, within a limit of Euro 2 million for the acquisition and/or sale of quotas or shares in companies, enterprises, business units or brands, Euro 2 million with reference to the annual cost of sponsorship contracts, 75% of the consolidated net capital of the Company, in relation to financing operations and Euro 2 million for the granting of all secured and unsecured guarantees and patronage letters (with the exception of the subsidiary companies).

At the date of the present Report there are no interlocking directorates.

At the same meeting of April 29, 2013 the Director Paolo Cafasso was conferred, as Group Finance Director, executive powers for the administrative and financial management of the Company.

Chairman of the Board of Directors

The Board Meeting of April 29, 2013 noted that the accumulation of offices of Chairman and Executive Director of Marco Daniele Boglione was justified within the Corporate Governance practice of business continuity, in that he is the founder of the Group and has always been directly involved in the activities of the Company.

As already illustrated at point 2.C of the present Report, Mr. Marco Daniele Boglione holds 22,250,000 shares equal to 36.479% of the share capital, of which 22,071,666 shares, equal to 36.187% of the share capital, indirectly through the subsidiary held 90.58%, BasicWorld S.r.l. and, directly, 178,334 shares, equal to 0.292% of the share capital.

Executive committee (as per article 123-bis, paragraph 2, letter d), CFA)

The Board of Directors did not set up an Executive Committee. Reporting to the Board

Reference should be made to paragraph 4.3 above. 4.5. OTHER EXECUTIVE DIRECTORS

In addition to the Chairman Marco Daniele Boglione, the Executive Directors are the Chief Executive Officer, Franco Spalla, the Executive Directors Paolo Cafasso, Group Finance Director and Paola Bruschi, Chief Operational Officer, the Chairman of the Board of Directors of the strategic subsidiary BasicItalia S.p.A., Elisabetta Rolando and the Executive Vice Chairman of the strategic subsidiary Basic Properties America, Inc., Maurizio Ameri and the Executive Director of BasicNet Asia Ltd., Luca Merlone.

4.6 INDEPENDENT DIRECTORS

The Board of Directors includes two Independent Directors: Giovanni Crespi and Adriano Marconetto.


DIRECTORS’ REPORT

33

The Board of Directors on their appointment to office and in the Board meeting of March 21, 2014 assessed the independence of the Directors Giovanni Crespi and Adriano Marconetto, both in relation to the requirements of Consob regulations and the criteria of the Self-Governance Code. The criteria and procedures were reviewed by the Board of Statutory Auditors. For the year 2013 the Board of Statutory Auditors communicated the results of these controls in the report of the Board of Statutory Auditors to the Shareholders’ AGM. No specific meetings of the independent Directors are planned, however both are members of the Risk and Control Committee and may meet independently, where considered appropriate within the meetings of this Committee. In accordance with the procedures for the transactions with related parties the independent Directors provide, where required, a non-binding opinion on the Board motions.

4.7 LEAD INDEPENDENT DIRECTOR

In relation to the recommendation of the Self-Governance Code to appoint a Lead Independent Director where operating powers are conferred to the Chairman of the Board of Directors, the Board of Directors, in the meeting held on April 29, 2013, also in view of the composition of the Board of Directors, as well as the size and organisation structure of the Company, considered that this concentration of offices did not impact upon the impartiality and the equilibrium assumed in the role of Chairman of the Board of Directors.

4.8 EXECUTIVE DIRECTORS SUCCESSION PLANS

Currently, the Company does not have any succession plans for the replacement of Executive Directors; the Board of Directors of BasicNet is responsible for the instigation and management of the advanced replacement of the Executive Directors.

5. HANDLING OF CORPORATE INFORMATION

The Board meeting of May 15, 2012 approved the procedure for the handling of confidential information, subsequently updated with the regulations on Market Abuse. This procedure contains the regulations for the setting up and management, based on a specific computer based programme, of the Register for persons with access to confidential information.

Since April 1, 2006 the Internal Dealing Code of conduct has been applied which governs the procedures for disclosure to the market on operations on BasicNet S.p.A. shares by “Significant Persons” of the Group, pursuant to Article 144 and thereafter of the CFA. The procedure is available on the website www.basicnet.com.

In 2013 no disclosures were made.

6. INTERNAL COMMITTEES TO THE BOARD (as per Article 123-bis, paragraph 2, letter d) CFA)

The Board meeting of April 29, 2013 appointed the Remuneration Committee and the Internal Control and Risk Committee.

The Board did not set up, as illustrated below, an Appointments Committee or other committees.

7. APPOINTMENTS COMMITTEE

In line with evaluations made in the past, the Board of Directors, also in view of the size and shareholding of the Company, did not consider it necessary to set up an Appointments Committee for the nomination of Directors, also given that, in accordance with Article 13 of the Company By-Laws, the Directors are elected through a slate voting mechanism. In addition, the Board of Directors retain that considerations on the size and composition of the Board of Directors, proposals to nominate candidates as Directors in the event of co-optation and succession planning of Executive Directors, fall within the remit of the entire Board of Directors and as such may be discussed and approved within the Board meetings.


DIRECTORS’ REPORT

34

8. REMUNERATION COMMITTEE

Composition and Operation of the Remuneration Committee (as per Article 123-bis, paragraph 2, letter d) CFA)

In the Board meeting of April 29, 2013 the Board appointed the Remuneration Committee composed of the Non-Executive Director Carlo Pavesio - Chairman, Daniela Ovazza, and the Non-Executive and Independent Director Adriano Marconetto.

The Board considers that the Committee, in its current composition of three non-executive Directors, of which one independent, adequately undertakes its duties formulating proposals in line with the objectives and performance of the Group, considering the commitment of the individual Executive Directors. The proposals of the Committee have always been approved by the Board of Statutory Auditors and the Independent Director Gianni Crespi.

The proposals of the Remuneration Committee are normally included in the minutes of the Board meetings to which they are presented.

The Remuneration Committee has full access to the information and departments necessary for the carrying out of its remit.

In 2013, the Committee presented proposals for the remuneration of Directors holding specific offices and members of the committees.

The Directors do not attend the Committee meetings in which the proposals are presented to the Board relating to their remuneration.

9. REMUNERATION OF DIRECTORS

For further information on the present section reference should be made to the significant parts of the Remuneration Report published pursuant to Article 123-ter of the CFA.

In March 2014, on the proposal of the Remuneration Committee, the Board, with the favourable opinion of all the Independent Directors, approved the remuneration policy of BasicNet S.p.A., which substantially confirms the text approved by the Shareholders’ AGM of April 29, 2013.

In summary, the remuneration of the Directors are approved by the Shareholders’ Meeting. The remuneration of the Directors holding specific offices and for the members of the Internal Committees of the Board is determined by the Board of Directors, pursuant to Article 2389 of the Civil Code, on the proposal of the Remuneration Committee, with the favourable opinion of the Independent Director Gianni Crespi and having consulted the Board of Statutory Auditors. There are no senior management who are not members of the Board of Directors of BasicNet S.p.A. or of its strategic subsidiaries.

The Board of Directors may receive additional remuneration or bonuses identified by the Board of Directors, on the proposal of the Remuneration Committee, amid results ahead of estimates. Given the current market, this portion is assessed ex-post. Indemnity of the directors in case of dismissal and termination of employment following a public purchase offer (as per Art. 123 bis, para. 1, letter i) f the CFA)

The disclosures required by Article 123-bis, paragraph 1, letter 1) (“the agreements between the company and directors – which provide for indemnity in the case of dismissal without just cause or in the case in which the employment services cease after a public offer”) are contained in the remuneration report pursuant to Article 123-ter of the CFA, available on the company’s website www.basicnet.com (in the section “Shareholders’ AGM 2014”).

10. CONTROL AND RISKS COMMITTEE

Composition and operation of the control and risks committee (as per Article 123-bis, paragraph 2, letter d) CFA)

The present Control and Risk Committee was appointed in the Board meeting of April 29, 2013. The Committee is composed of three Directors, of which two independent: Giovanni Crespi, Independent and Non-Executive Director, Alessandro Gabetti Davicini, Non-Executive Director, Adriano


DIRECTORS’ REPORT

35

Marconetto, Independent and Non-Executive Director. Since July 2011 the Director Giovanni Crespi has been a member of the Board of Directors of the subsidiary BasicItalia S.p.A., with oversight on control and risk management of the Company. On their appointment the Board considered that the members had adequate accounting and financial experience.

In 2013, the Committee met four times and had regular access to the corporate documents requested and principally reviewed:

• the reports prepared by the Internal Auditing and Supervision Board during 2013;

• the annual report on the internal control and risk management system and the organisational, administration and accounting systems;

• the implementation of new procedures;

• the application of new compliance and disclosure regulations;

• the significant information relating to the company performance.

The Committee meetings, which were all documented in company records, held for a duration of approx. 2 hours were attended by the Finance Director and Group officer responsible for financial reporting, Paolo Cafasso, the Internal Auditing Head, the Executive Director responsible for internal control, Paola Bruschi, and the Chairman of the Board of Statutory Auditors and another statutory auditor.

Duties attributed to the internal control and risks committee

The Committee proposes to the Board of Directors on the appointment, revocation and remuneration of the internal audit manager, as well as on the adequacy of the resources available for these duties. In particular, the Committee supports the Board of Directors as follows: - evaluates, together with the executive responsible for the preparation of corporate accounting

documents following the approval of the auditors and the board of statutory auditors, the correct application of the accounting principles and their uniformity in the preparation of the consolidated financial statements;

- expresses opinions on specific aspects concerning the identification of the principal corporate risks;

- examines the periodic reports, concerning the evaluation of the internal control and management of risks system and prepared by the internal audit department;

- monitors the independence, adequacy, efficacy and efficiency of the internal audit department; - may request the internal audit department to carry out verifications on specific operational areas,

simultaneously communicating such to the Chairman of the Board of Statutory Auditors; - at least every six months, at the time of the approval of the annual and half-yearly accounts,

reports to the board on the work carried out and the adequacy of the internal control system.

The Committee has access to the information and departments for undertaking their duties and may request the Board of Directors the assistance of external consultants.

11. INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM

The internal control and risk system involves the processes that monitor the efficiency of the company operations, the reliability of the financial reporting, compliance with legislation and regulations and the protection of the company’s assets.

The Board of Directors oversees the Internal Control and Risk Management system, defining the guidelines and periodically verifying the adequacy and effective functioning, ensuring that the principal corporate risks are identified and adequately managed.


DIRECTORS’ REPORT

36

The Ethics Code, the Sourcing Centre Ethics Code and the organisational, management and control Model as per Legislative Decree 231/2001 and subsequent integrations, are an integral part of the internal control and risk management system. The rules of conduct contained in the model, continually evolving, integrate and strengthen the corporate control system through the preparation and continual updating of the related procedures.

The Internal Auditing department verifies the overall adequacy, efficiency and effectiveness of the internal control and risk management system, in particular, considering that some departments are centralised at the Parent Company, it contributes to the verification of the correctness and functioning of the reporting process with the strategic subsidiary companies, as well as the verification of the adequacy of the reporting system to ensure the quality of the reports of the various company departments.

In order to ensure oversight on the Group directives and strategies some Directors of BasicNet S.p.A. are also members of the Board of Directors of the subsidiaries.

In the evaluation of the internal control and risk management system, the Board of Directors meeting of March 21, 2014 evaluated that the Risk and Control Committee and the Board of Statutory Auditors did not report any serious issues and consider that there are no significant weaknesses within the system, especially with reference to operations of potential conflict of interest, while within a continual evolution and search for improvements, the internal control and risk management system appears to meet the needs of the Company and of the Group.

Control and risk management system in relation to the financial reporting process (as per Article 123-bis, paragraph 2, letter b), of the CFA)

The internal control and risk management system in relation to the financial reporting process (hereafter the System) is the set of overall rules and corporate procedures adopted by the various “.com” to permit, through an adequate identification process of the principal risks related to the preparation and dissemination of financial information, the reaching of the corporate objectives of true and fair disclosure. The System seeks to provide reasonable certainty that the financial reporting – including consolidated reporting - communicated to the public is reliable, fair, true and timely, providing the users with a true and fair representation of the operational facts, permitting the issue of the declarations required by law that they correspond to the documented results, accounting records and underlying accounting entries of the facts and of the communications of the company to the market and also relative interim financial reporting, as well as the adequacy and effective application of the administrative and accounting procedures during the period to which the accounting documents refer (Annual Accounts and Half-Year Report) and in accordance with applicable international accounting standards. For the completion of the system, a risk assessment was undertaken in order to identify and evaluate the risk areas which could arise such as to compromise the reliability of the financial reporting. The risk assessment also took into account the risk of fraud. The identification and evaluation process was undertaken with reference to the entire company and at process level. Once the risks were identified an evaluation was undertaken, considering both qualitative and quantitative aspects and the identification of specific controls in order to reduce the risk related to the non-achievement of the objectives of the System to an acceptable level, both at Company and process level. The System provides for:

a set of rules and procedures for the preparation of financial statements and monthly reporting and a financial calendar for an efficient exchange of information between the Parent Company and its subsidiaries;

a process of identification and evaluation of the principal risk of errors of the accounting and financial information, related to a control process of implemented on the web which flags any errors;

a process of periodic evaluation of the adequacy and effective application of controls, this latter monitored directly by the Executive responsible for financial reporting.


DIRECTORS’ REPORT

37

The control and prevention activity, in tandem with the provisions of the Organisation and Management Model prepared pursuant to Legislative Decree 231/2001, provides for controls related to the assignment of responsibilities, powers and delegations, through the separation of duties and assignment of different access rights to the various IT applications, authorisations, reconciliations, as well as reasonable controls.

11.1. EXECUTIVE DIRECTOR IN CHARGE OF INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM

The Executive Director Paola Bruschi was appointed at the meeting of Aril 29, 2013 to oversee the Control and Risks Committee.

Within this role Paola Bruschi oversees the functioning of the internal control and risk management system, identifying the principal corporate risks (operational, financial and compliance), implementing the guidelines defined by the Board and supervises the planning, realisation and the management of the internal control and risk management system, constantly verifying the overall adequacy, efficiency and effectiveness, also with reference to the operating conditions and current legislative and regulatory requirements.

11.2 INTERNAL AUDIT MANAGER

The responsibility to verify the overall adequacy, efficiency and effectiveness of the internal control and risk management System was assigned to the Internal Auditing department. In particular, considering that some departments are centralised at the Parent Company, this department contributes to the verification of the correctness and functioning of the reporting process with the strategic subsidiary companies, as well as to the verification of the adequacy of the reporting system to ensure the quality of the reports of the various company departments. On appointment, the Board also determined the remuneration for this office, considered in line with the structure of the Group.

The Internal Audit manager, who does not report to any operating department, has access to all information considered necessary to carry out his role. The internal audit manager reports to the Internal Control Committee and to the Board of Statutory Auditors; in addition, he also reports to the executive director responsible for supervising the functioning of the internal control System.

The control activity is principally concentrated on monitoring the principal profitability indicators of some Group companies, through an online reporting instrument on the company’s portal. This report constitutes an important monitoring instrument in real-time of the accounting activities and business performance: the data is available for each Group company and analysed by individual account item.

The Internal Auditing department was awarded to an external company which has no corporate ties to the Group. The activities were outsourced as it was considered that the head of the company, who had already undertaken similar work within the Group, had the necessary attributes to undertake such work efficiently within the Group, on an independent and professional basis.

11.3 ORGANISATIONAL MODEL pursuant to Legislative Decree 231/2001

The Ethics Code, the Sourcing Centre Ethics Code and the organisational, management and control Model as per Legislative Decree 231/2001 and subsequent supplements, are an integral part of the internal control and risk management system. The rules of conduct contained in the model, continually evolving, integrate and strengthen the corporate control system through the preparation and continual updating of the related procedures.

For the effective dissemination of the Ethics Code and of the organisation and control model these were published on the company’s website www.basicnet.com in the area dedicated to Group employee time-keeping. The Ethics Code is presented on a video to all new employees of the Group and to all consultants. The Board meeting of April 29, 2013 reappointed the members of the Supervisory Board, which was entrusted with the oversight of the Model and its development and reporting to the Board of Directors and Board of Statutory Auditors on a half-yearly basis.


DIRECTORS’ REPORT

38

In 2013, the Supervisory Board held 4 meetings which focused on the efficiency of the corporate procedures, with particular reference to the most significant in relation to possible offenses pursuant to Decree 231/2001. During the verifications no matters arose. The Board did not request the Board of Statutory Auditors to undertake the functions of the Supervisory Board.

11.4 INDEPENDENT AUDIT FIRM

The audit is carried out by an independent audit firm registered in the relevant registrar. The Shareholders’ Meeting of April 30, 2008 appointed the audit firm PricewaterhouseCoopers S.p.A.. The appointment concludes with the approval of the 2016 Annual Accounts.

11.5 EXECUTIVE OFFICER RESPONSIBLE FOR THE PREPARATION OF FINANCIAL

STATEMENTS

The Board meeting of April 29, 2013 appointed, with the favourable opinion of the Board of Statutory Auditors, the Executive Officer responsible for the preparation of financial statements as the Director Mr. Paolo Cafasso, Group Finance Director. Paolo Cafasso holds many years experience in the administrative, financial and control areas, as well as the qualifications required by law for the holding of the office of Director.

In the undertaking of his duties Mr. Paolo Cafasso has the power to approve the corporate procedures impacting upon the financial statements, on the consolidated financial statements and on other documents which may be audited, and may participate in the design of the IT systems which impact upon the financial position of the company; he may avail of an adequate organsational structure to undertake his activities, utilising internal resources available and, where necessary, outsourcing; he may also, where necessary, utilise the financial resources of the company, providing adequate information to the Board of Directors, and he may utilise the Internal Auditing department for the mapping and analysis of processes and the execution of specific controls.

11.6 COORDINATION OF THE PARTIES INVOLVED IN THE INTERNAL CONTROL AND

RISKS MANAGEMENT SYSTEM

The guidelines of the internal control and risk management system identify specific duties for each party involved in order to avoid duplication of roles.

12. DIRECTORS INTERESTS AND TRANSACTIONS WITH RELATED PARTIES

The Board of Directors, in accordance with Consob Regulation No. 17221 of March 12, 2010 adopted, with the favourable opinion of the Independent Directors, the procedure for transactions with related parties. The approval of the transactions with related parties is the responsibility of, both in relation to significant transactions, as BasicNet falls within the application of Article 3, paragraph 1, letter f) of the Related Party Regulations, and in relation to minor transactions, to the Board of Directors, or the Executive Board, provided they are not a related party in the transaction, within the limits of their delegated powers, with prior non-binding opinion of the Independent Directors or similar Appointees.

Where the Independent Directors or similar Appointees have expressed a negative opinion on a transaction within the powers attributed to the Executive Boards, such must be presented for approval to the Board of Directors. Where the operation exceeds the delegated powers attributed to the Executive Boards, the transaction is presented for approval to the Board of Directors, with prior non-binding opinion of the Independent Directors or equivalent Appointees. The resolutions in relation to operations not undertaken at market value or standard value and significant operations in accordance with the parameters defined by Consob Regulation are reserved for approval by the Board of Directors. Exempted from the procedure, with reference to approval, in addition to all the matters expressly indicated by the Related Party Regulation issued by Consob, are insignificant operations (amounts not above Euro 150 thousand), provided they are undertaken at market or standard conditions within the


DIRECTORS’ REPORT

39

ordinary operations of the business and of the related financial activities; the operations concluded with or between subsidiaries, including joint ventures, by BasicNet, provided in the subsidiary companies there are no counterparties in the operation that have interests, qualified as significant, of other related parties of the Company; the operations with associates provided that the associated company counterparties in the operation do not have interests, qualified as significant, of other related parties of the Company. Significant interest is not considered to exist by the mere sharing of one or more Directors or one or more senior management responsibilities between BasicNet and the companies of the subsidiary. A procedure was implemented which transmits an alert mail through the “basicprocurement” order system by a related party, identified on the basis of declarations received from related parties (members of the Board of Directors and Board of Statutory Auditors).

In 2013, no resolutions were presented to the Board of Directors concerning transactions with related parties. The remuneration of the members of the Board of Directors was approved in the meeting of April 29, 2013, on the proposal of the Remuneration Committee, with the favourable vote of the two Independent Directors and the Board of Statutory Auditors. The above-mentioned resolution is exempt from the procedure in accordance with point 3 letter e), as in line with the remuneration policy of the Company, defined with the contribution of two Independent Directors within the Board, approved on the second point of the Shareholders’ Meeting held on the same date.

The procedure is available on the company’s website www.basicnet.com (section “Corporate Governance” BasicNet).

13. APPOINTMENT OF STATUTORY AUDITORS

The regulation applicable for the appointment of the members of the Board of Statutory Auditors is in accordance with legislative and regulatory provisions and Article 17 of the Company By-Laws, in relation to which reference should be made to the company’s website www.basicnet.com (section “Corporate Governance BasicNet/By-Laws).

14. COMPOSITION AND OPERATION OF THE BOARD OF STATUTORY AUDITORS (as per Article 123-bis, paragraph 2, letter d) CFA)

The members of the Board of Statutory Auditors in office Massimo Boidi, Chairman, Carola Alberti and Maurizio Ferrero, Standing Auditors were appointed by the Shareholders’ Meeting of April 29, 2013 on the basis of a single slate, filed by the shareholder BasicWorld S.r.l., holder at that date of 36.187% of the Share Capital, as no other slate was received within the time period required by the regulations by a shareholding of at least 2.25% of the voting rights. The documentation filed for the purposes of the appointment, including the curriculum vitaes of the statutory auditors is available on the website www.basicnet.com. The composition of the Board of Statutory Auditors is in line with the “gender quota” required by the new Consob regulation.

Each member of the Board of Statutory Auditors possess the good standing and professional requirements in accordance with law and the Company By-Laws. The Board of Statutory Auditors verified the independence of their members based on the criteria of the new Self-Governance Code, confirming the independence of the members in accordance with the above-mentioned code, although the Statutory Auditors are in office for over nine years.

During the year the Board of Statutory Auditors held five meetings.


DIRECTORS’ REPORT

40

The Statutory Auditor who, on his/her own behalf or that of third parties, has an interest in a determined transaction of the issuer informs the other statutory auditors and the Chairman of the Board, in a timely and comprehensive manner, regarding the nature, terms, origin and extent of his/her interest. This event however has never occurred.

As already indicated in the preceding paragraphs, the Board of Statutory Auditors, in undertaking its activities, liaise with the Internal Auditing department and the Control and Risks Committee.

15. RELATIONS WITH SHAREHOLDERS

The Chairman and Chief Executive Officer, who also undertakes the role of Investor Relator, actively undertakes dialogue with the shareholders, as well as with the institutional investors.

In addition, since its stock market listing, the dialogue with investors was further encouraged through an adequate updating of the contents on the internet site of the Company www.basicnet.com, which includes information of a financial/economic nature (annual reports, half year and quarterly reports, share price information), and updated documents for all of the shareholders (composition of corporate boards, Company By-Laws and Shareholder Meeting Regulations, Corporate Governance Report, Ethics Code, Group organisation structure and its activities), as well as reports prepared for the Shareholders Meetings. The press releases relating to the Brands and Companies of the Group, as well as the Chairman Marco Daniele Boglione and the Chief Executive Officer Franco Spalla are also available.

16. SHAREHOLDERS’ MEETINGS (as per Article 123-bis, paragraph 2, letter c), CFA)

The shareholders’ meetings provide opportunities to meet and communicate with the shareholders. During the Shareholders’ Meetings the Chairman and the Chief Executive Officer provide the Shareholders with all the necessary information for the undertaking of resolutions. The Ordinary Shareholders’ Meetings undertake their duties in accordance with Article 2364 of the Civil Code and the Extraordinary Shareholders’ Meetings in accordance with Article 2365 of the Civil Code.

The Shareholders’ Meeting (June 30, 2000, and for supplementation and/or modifications subsequently on April 30, 2011) approved the Shareholders’ Meetings Regulations in order to permit the orderly functioning of the meetings and to guarantee the right of each shareholder to take the floor on matters under discussion. The Shareholders’ Meeting regulations are available on the Company website www.basicnet.com. Usually, all Directors attend the Shareholders’ Meetings.

During the year there were no significant changes in the shareholders structure of the Issuer.

17. FURTHER CORPORATE GOVERNANCE PRACTICES (as per Article 123-bis, paragraph 2, letter a), CFA)

There are no corporate governance practices further to those indicated in the previous points applied by the Issuer, other than those required by legislation and regulation.

18. CHANGES SUBSEQUENT TO THE YEAR-END

There were no changes after the year-end.

BasicNet Group – Consolidated Financial Statements as at December 31, 2013 -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATORY NOTES

41

CONSOLIDATED FINANCIAL STATEMENTS AND

EXPLANATORY NOTES

OF THE BASICNET GROUP AS AT DECEMBER 31, 2013

BasicNet Group – Consolidated Financial Statements as at December 31, 2013 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATORY NOTES

42

CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES

In accordance with Consob Resolution No. 15519 of July 27, 2006 the transactions with related parties are described at Note 44.

The application of IAS 19 Revised (Employee benefits) required the restatement of the comparative figures for the previous year, as described in Note 2 – Accounting principles for the preparation of the financial statements.

BASICNET GROUP CONSOLIDATED INCOME STATEMENT

(In Euro thousands)

FY 2013 FY 2012 (restated) Changes

Note % % %

Direct consolidated sales (8) 111,696 100.00 110,026 100.00 1,670 1.52 Cost of sales (9) (69,008) (61.78) (70,417) (64.00) 1,409 2.00

GROSS MARGIN 42,688 38.22 39,609 36.00 3,079 7.78 Royalties and sourcing commissions (10) 39,806 35.64 42,412 38.55 (2,606) (6.15) Other income (11) 12,864 11.52 3,990 3.63 8,874 222.33 Sponsorship and media costs (12) (14,599) (13.07) (18,018) (16.38) 3,419 18.98 Personnel costs (13) (19,161) (17.15) (19,051) (17.31) (110) (0.58) Selling, general and administrative costs, royalties expenses

(14)

(38,831)

(34.77)

(36,799)

(33.45)

(2,032)

(5.52)

Amortisation & Depreciation (15) (6,040) (5.41) (6,900) (6.27) 860 12.46 Write-downs and other provisions (16) (4,500) (4.03) - - (4,500) N.A. EBIT 12,227 10.95 5,243 4.77 6,984 133.18 Net financial income (charges) (17) (3,847) (3.44) (3,390) (3.08) (457) (13.44) PROFIT BEFORE TAXES 8,380 7.50 1,853 1.68 6,527 352.36 Income taxes (18) (3,879) (3.47) (1,547) (1.41) (2,332) (150.70) Non-recurring tax charges (19) - - (17,472) (15.88) 17,472 100.00

GROUP NET PROFIT/(LOSS) 4,501 4.03 (17,166) (15.60) 21,667 126.22

Earnings per share

- Basic - Diluted

(20)

0.0781 0.0781

(0.2985) (0.2985)

N/S N/S

N/S N/S

BasicNet Group – Consolidated Financial Statements as at December 31, 2013 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATORY NOTES

43

COMPREHENSIVE CONSOLIDATED INCOME STATEMENT

The “Comprehensive Income Statement” is reported below, prepared in accordance with IAS 1 Revised, which indicates the cost and revenue items which, as required or permitted by IFRS, are not recorded in the profit and loss account, but directly recorded as a change in equity. (In Euro thousands)

FY 2013 FY 2012

(restated)

Profit/(loss) for the year (A) 4,501 (17,166) Effective portion of the Gains/(losses) on cash flow hedges

727 (627) Remeasurement of post-employment benefits (IAS 19) (*)

97 (233) Gains/(losses) from translation of accounts of foreign subsidiaries (8) (137)

Tax effect on other profits/(losses) (226) 236 Total other profits/ (losses), net of tax effect (B)

590 (761) Total Comprehensive Profit/(loss) (A)+(B) 5,091 (17,927) Total Comprehensive Profit/(loss) attributable to: – Shareholders of BasicNet S.p.A. 5,091 (17,927) - Minority interests - -

(*) items which may not be reclassified to the profit and loss account

BasicNet Group – Consolidated Financial Statements as at December 31, 2013 -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATORY NOTES

44

BASICNET GROUP CONSOLIDATED BALANCE SHEET

(In Euro thousands)

ASSETS Note December 31, 2013 December 31, 2012 (restated)

Intangible fixed assets (21) 41,355 40,892 Goodwill (22) 10,675 12,146 Property, plant and equipment (23) 31,688 32,485 Equity investments and other financial assets (24) 386 651 Deferred tax assets (25) 767 663

Total non-current assets 84,871 86,837

Net inventories (26) 48,269 52,138 Trade receivables (27) 43,686 44,697 Other current assets (28) 12,748 12,240 Prepayments (29) 6,903 8,101 Cash and cash equivalents (30) 6,489 2,279 Derivative financial instruments - - Total current assets 118,095 119,455

TOTAL ASSETS 202,966 206,292

LIABILITIES Note December 31, 2013 December 31, 2012 (restated)

Share capital 31,717 31,717 Reserve for treasury shares in portfolio (5,765) (5,457) Other reserves 37,162 53,738 Net Profit/(loss) 4,501 (17,166) Minority interests - -

TOTAL SHAREHOLDERS’ EQUITY (31) 67,615 62,832

Provisions for risks and charges (32) 4,413 4,439 Loans (33) 21,809 20,839 Employee and Director benefits (34) 2,886 3,926 Other non-current liabilities (35) 670 623 Total non-current liabilities 29,778 29,827

Bank payables (36) 37,803 42,632 Trade payables (37) 35,747 39,746 Tax payables (38) 20,061 20,208 Other current liabilities (39) 7,979 4,836 Accrued expenses (40) 1,946 3,447 Derivative financial instruments (41) 2,037 2,764 Total current liabilities 105,573 113,633

TOTAL LIABILITIES 135,351 143,460

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 202,966 206,292

BasicNet Group – Consolidated Financial Statements as at December 31, 2013 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATORY NOTES

45

CONSOLIDATED CASH FLOW STATEMENT OF THE BASICNET GROUP

(In Euro thousands)

December 31, 2013 December 31, 2012(restated)

A) OPENING SHORT-TERM BANK DEBT

(36,371) (43,294) B) CASH FLOW FROM OPERATING ACTIVITIES

Net profit (loss) for the year 4,501 (17,166) Amortisation & Depreciation 6,040 6,900 Write-downs and other provisions 4,500 - Changes in working capital: . (Increase) decrease in trade receivables 1,011 5,274 . (Increase) decrease in inventories 3,869 1,632 . (Increase) decrease in other receivables (163) (2,573) . Increase (decrease) in trade payables (4,199) 6,673 . Increase (decrease) in other payables 496 17,175 Net change in post-employment benefits

(187)

296 Others, net (221) 3,823 15,647 22,034

C) CASH FLOW FROM INVESTING ACTIVITIES

Investments in fixed assets: - tangible assets (2,615) (3,201) - intangible assets (5,210) (3,895) - financial assets - (402) Realisable value for fixed asset disposals: - tangible assets 97 - - intangible assets 193 - - financial assets 266 - (7,270) (7,498)

D) CASH FLOW FROM FINANCING ACTIVITIES

Lease contracts (repayments) 131 490 Loan repayments (4,517) (3,982) Conversion of short-term credit lines 7,500 - Acquisition of treasury shares (308) (1,216) Dividend payments - (2,905) 2,806 (7,613)

E) CASH FLOW IN THE YEAR 11,182 6,923

F) CLOSING SHORT-TERM BANK DEBT

(25,189) (36,371)

Interest paid for the year amounts to respectively Euro 3.2 million in 2013 and Euro 3.7 million in 2012, while income taxes paid in the year amount respectively to Euro 1.5 million in 2013 and Euro 0.4 million in 2012.


EXPLANATORY NOTES

46

STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY

(In Euro thousands)

Share

Capital

Treas. shares

Retained earnings

Translation reserve

IAS 19 reserve

Cash Flow hedge

reserve

Net result

Total Group share. equity

Balance at December 31, 2011 31,717 (4,241) 50,424 475 (95) (1,547) 8,147 84,880 Allocation of result as per Shareholders’ AGM resolution of April 27, 2012

- Retained earnings - 5,242 - - - (5,242) -

- Distribution of dividends - - - - - (2,905) (2,905)

Acquisition of treasury shares (1,216) - - - - - (1,216)

2012 Result - - - - - (17,166) (17,166)

Other comprehensive income statement items:

- Gains/(losses) recorded directly to translation reserve - - (137) - - - (137)

- Gains/(losses) recorded directly to equity for IAS 19 remeasurement - - - (169) - - (169)

- Gains recorded directly to cash flow hedge reserve - - - - (455) - (455)

Total comprehensive income statement

- - (137) (169) (455) (17,166) (17,927)

Balance at December 31, 2011 31,717 (5,457) 55,666 338 (264) (2,002) (17,166) 62,832 Allocation of result as per Shareholders’ AGM resolution of April 29, 2013

- Retained earnings - (17,166) - - - 17,166 -

Acquisition of treasury shares (308) - - - - - (308)

2013 Result - - - - - 4,501 4,501


- Gains/(losses) recorded directly to translation reserve - - (8) - - - (8)

- Gains/(losses) recorded directly to equity for IAS 19 remeasurement - - - 70 - - 70

- Gains recorded directly to cash flow hedge reserve - - - - 528 - 528

Total comprehensive income statement

- - (8) 70 528 4,501 (5,091)

Balance at December 31, 2013 31,717 (5,765) 38,500 330 (194) (1,474) 4,501 67,615


EXPLANATORY NOTES

47

CONSOLIDATED NET FINANCIAL POSITION

(In Euro thousands)

December 31, 2013 December 31, 2012

Cash and cash equivalents 6,489 2,279 Bank overdrafts and bills (13,887) (23,918) Import advances (17,791) (14,732) Sub-total net liquidity available (25,189) (36,371)

Short-term portion of medium/long-term loans (6,125) (3,982)

Short-term net financial position (31,314) (40,353)

Superga medium/long term loan (1,781) (4,156) Basic Village mortgage loan (9,300) (10,500) BasicItalia mortgage loan (3,560) (3,967) UBI Banca loan (4,821) - Lease payables (2,347) (2,216) Sub-total loans and leasing (21,809) (20,839)

Consolidated net financial position (53,123) (61,192)

The statement required by Consob Communication No. 6064293 of July 28, 2006 is reported below.


A. Cash 60 158 B. Other cash equivalents 6,429 2,121 C. Securities held for trading - - D. Cash & cash equivalents (A)+(B)+(C) 6,489 2,279 E. Current financial receivables - - F. Current bank payables (31,678) (38,650) G. Current portion of non-current debt (6,125) (3,982) H. Other current fin. payables - - I. Current financial debt (F)+(G)+(H) (37,803) (42,632) J. Net current financial debt (I)-(E)-(D) (31,314) (40,353) K. Non-current bank payables (21,809) (20,839) L. Bonds issued - - M. Derivatives fair value (cash flow hedge) (2,037) (2,764) N. Non-current financial debt (K)+(L)+(M) (23,846) (23,603) O. Net financial debt (J)+(N) (55,160) (63,956)

The net financial debt differs from the consolidated net financial position for the fair value of the derivatives, relating to the interest and currency hedging operations – cash flow hedges (Note 41).


EXPLANATORY NOTES

48

EXPLANATORY NOTES

1. GENERAL INFORMATION

BasicNet S.p.A. – with registered office at Largo Maurizio Vitale 1, Turin, listed on the Italian Stock Exchange since November 17, 1999 and its subsidiaries, operate in the sports and causal clothing, footwear and accessories sector through the brands Kappa, Robe di Kappa, Jesus Jeans, Lanzera, K-Way, Superga, AnziBesson and Sabelt. Group activities involve the development of the value of the brands and the distribution of their products through a global network of independent licensees.

The duration of BasicNet S.p.A. is fixed by the company by-laws until December 31, 2050.

The publication of the consolidated financial statements of BasicNet as at December 31, 2013 was approved by the Board of Directors on March 21, 2014.

2. ACCOUNTING PRINCIPLES FOR THE PREPARATION OF THE FINANCIAL STATEMENTS

The main accounting principles adopted in the preparation of the consolidated financial statements and Group financial reporting are described below.

The financial statements are prepared under the historical cost convention, modified where applicable for the measurement of certain financial instruments and in accordance with the accruals principle, as well as on the going concern assumption.

The consolidated financial statements for the year 2013 were prepared in accordance with IFRS issued by the International Accounting Standards Board (“IASB) and approved by the European Union. IFRS refers to all the revised International Accounting Standards (IAS) and all of the interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) - previously known as the Standing Interpretations Committee (“SIC”).

The Group consolidated financial statements include the financial statements at December 31, 2013 of BasicNet S.p.A. and all the Italian and foreign companies in which the Parent Company holds, directly or indirectly, the majority of the voting rights. For the financial statements of the US, Spanish and Dutch subsidiaries, which utilise local accounting standards, as not obliged to adopt IAS/IFRS, the appropriate adjustments were made for the preparation of the consolidated financial statements in accordance with international accounting standards.

The accounting principles utilised in the consolidated financial statements are the same as those utilised in the previous year.

Accounting standards, amendments and interpretations applied from January 1, 2013

On June 16, 2011, IASB issued an amendment to IAS 19 – Employee benefits, applicable to the annual financial statements for the year 2013, with restatement of the 2012 comparative figures in accordance with IAS 8 – Accounting policies, changes in accounting estimates and errors. The new version of IAS 19 requires, in particular, for the post-employment benefits, the recognition of the changes of the actuarial gains/losses under other items of the Comprehensive Income Statement, thus eliminating the other options previously permitted, including that adopted by the BasicNet Group, which recorded these items in the profit and loss for the year. The cost relating to employment services, as well as the interest on the “time value” component in the actuarial calculations will remain in the profit and loss account. These amendments resulted in the restatement of the consolidated income statement, consolidated comprehensive income statement and the cash flow statement for the year 2012 reported for comparative purposes (“restated”); there was no impact on the balance sheet.


EXPLANATORY NOTES

49

The effects from the adoption of IAS 19 Revised are reported below (in Euro thousands):

Consolidated income statement FY 2012

Personnel costs – reversal actuarial loss 233

(Income taxes – Tax effect reversal actuarial loss) (64)

Impact for the year 169

Comprehensive Consolidated Income Statement FY 2012

Impact for the year 169

Remeasurement of post-employment benefits (IAS 19) - actuarial losses (233) - tax effect 27.5% 64

Impact on comprehensive profit for the year - On May 12, 2011, the IASB issued IFRS 13 – Fair value measurement which clarifies how fair value is calculated for the purposes of the financial statements and is applied to all IFRS standards which require or permit the calculation of the fair value or the presentation of information based on fair value. The standard, applied in prospective manner since January 1, 2013, did not result in any significant impact for the BasicNet Group.

On June 16, 2011, the IASB issued an amendment to IAS 1 – Presentation of Financial Statements requiring companies to group together items within other comprehensive income according to whether they may or may not be subsequently reclassified to the profit or loss account. The adoption of this amendment did not have any significant impact for the BasicNet Group.

On December 16, 2011, the IASB issued a number of amendments to IFRS 7 – Financial instruments: additional disclosure, which requires disclosure in the financial statements on the effects or potential effects deriving from remuneration rights on the financial assets and liabilities in the balance sheet. The amendments must be applied from the periods beginning on or after January 1, 2013. The adoption of this amendment did not have any impact for the BasicNet Group.

On May 17, 2012, the IASB issued a number of IFRS amendments – Improvements to international accounting standards - 2009-2011 Cycle. The principal amendements refer to:

IAS 1 - Presentation of financial statements – comparative information. The amendment clarifies the manner of presentation of comparative information when a company modifies an accounting principle or undertakes an adjustment or retrospective reclassification.

IAS 16 - Property, plant and equipment. The amendment clarifies that spare parts and replacement equipment must be classified in the account Property plant and equipment if utilised for more than one year, and in inventory if utilised for only one year.

IAS 32 – Financial instruments – presentation in the financial statements. The amendment eliminates an inconsistency between IAS 12 - Income Taxes and IAS 32 in the recognition of income taxes deriving from distributions to shareholders, establishing that these must be recognised to the income statement in the amount that the distribution relates to income generated from operations originally recognised to the income statement.

The adoption of these improvements did not have any impact on the valuation of the accounts in the consolidated financial statements as at December 31, 2013.


EXPLANATORY NOTES

50

Accounting standards, amendments and interpretations not yet effective and not adopted in advance by the Group

On May 12, 2011, the IASB issued IFRS 10 – Consolidated Financial Statements, replacing SIC 12 – Consolidation: special purpose vehicles and part of IAS 27 – Consolidated and separate financial statements. This latter was renamed Separate financial statements and only governs the accounting treatment of investments in the separate financial statements. The new standard, in addition to redefining the concept of control, provides a guide on determining the existence of control where such is difficult to ascertain. The standard must be applied in retrospective manner, at the latest, from the periods beginning from, or after, January 1, 2014.

On May 12, 2011, the IASB issued IFRS 11 – Joint arrangements, which replace IAS 31 – Interests in Joint Ventures and SIC13 – Jointly Controlled Entities: Non-Monetary Contributions by Venturers. The new standard outlines the criteria for the establishment of the substance of joint arrangements, based on the rights and obligations of the agreements, rather than on the legal form therein and establishes the equity method as the only method to be applied to holdings in joint ventures in the consolidated financial statements. The standard must be applied in retrospective manner, at the latest, from the periods beginning from, or after, January 1, 2014. The adoption of the standard will result in the abandonment of the proportional consolidation of the joint ventures by the BasicNet Group, which will not have a significant impact on the consolidated financial statements.

On May 12, 2011, the IASB issued IFRS 12 – Disclosure of Interests in Other Entities, which is a new and complete standard on additional disclosure for all forms of investments, including those in subsidiaries, joint ventures, associated companies, special purpose entities and other non-consolidated vehicle companies. The standard must be applied in retrospective manner, at the latest, from the periods beginning from, or after, January 1, 2014.

On December 16, 2011, the IASB issued a number of amendments to IAS 32 – Financial instruments: presentation in the financial statements, to clarify the application of certain offsetting criteria for financial assets and financial liabilities in IAS 32. The amendments are effective for annual periods beginning on or after January 1, 2014 and are required to be applied retrospectively. The BasicNet Group did not identify any significant impact from the application of this amendment.

On May 29, 2013, the IASB issued an amendment to IAS 36 – Disclosure on recoverable amount of non-financial assets, which governs the disclosure on the recoverable value of impaired assets, if this amount is based on the fair value net of selling costs. The amendments must be applied retrospectively from periods beginning from January from 1, 2014. Advanced application is permitted for the periods in which the entity has already applied IFRS 13. The application of these amendments are not expected to have any significant impact for the BasicNet Group.

On June 27, 2013, the IASB issued some minor amendments to IAS 39 – Financial Instruments: recognition and measurement, entitled “Novations of derivatives and continuity of Hedge Accounting”. The amendments permit continuation of hedge accounting in the case in which a derivative financial instrument, designated as a hedge instrument, is replaced following the application of law or regulations in order to replace the original counterparty so as to guarantee the fulfilment of the obligation assumed and where certain conditions are satisfied. The same amendment will also be included in IFRS 9 – Financial instruments. These amendments must be applied retrospectively from periods beginning from January 1, 2014. No significant impact is expected from the adoption of these amendments.

3. FORMAT OF THE FINANCIAL STATEMENTS

BasicNet Group presents its income statement by nature of cost items; the assets and liabilities are classified between current and non-current. The cash flow statement was prepared applying the indirect method. The format of the consolidated financial statements applied the provisions of Consob Resolution No. 15519 of July 27, 2006 and Notice No. 6064293 of July 28, 2006 on financial disclosure requirements. With reference to the aforementioned Consob Resolution No. 15519, in consideration of


EXPLANATORY NOTES

51

the insignificance of the overall amounts, transactions with related parties are described in Note 44 of the consolidated financial statements.

4. CONSOLIDATION PRINCIPLES

The consolidated financial statements were prepared including the financial statements at December 31, 2013 of the Group companies included in the consolidation scope, appropriately adjusted in accordance with the accounting principles adopted by the Parent Company.

The consolidated financial statements of the BasicNet Group is presented in Euro thousands; the Euro is the functional currency of the Parent Company and the majority of the consolidated companies.

Financial statements in currencies other than the Euro are translated into the Euro applying the average exchange rate for the year for the income statement and the exchange rate at the date of the operation in the case of non-recurring transactions. The balance sheet accounts are translated at the year-end exchange rate. The differences arising from the translation into Euro of the financial statements prepared in a currency other than the Euro are recorded in a specific reserve in the Comprehensive Income Statement.

The exchange rates applied are as follows:

Currencies FY 2013 FY 2012 Average At period end Average At period end

US Dollar 0.7518 0.7251 0.7739 0.7579

HK Dollar 0.0969 0.0935 0.0998 0.0978

Japanese Yen 0.0077 0.0069 0.0097 0.0088

UK Sterling 1.1765 1.1994 1.2321 1.2253

The criteria adopted for the consolidation were as follows:

a) the assets and liabilities, as well as the income and charges of the financial statements consolidated under the full integration method are included in the financial statements of the Group, without consideration of the holding in the subsidiary. The carrying value of the investments is eliminated against the share or net equity of the subsidiary companies. As all the companies included in the consolidation scope are wholly owned subsidiaries, there is no minority interest equity or result for the period;

b) the positive differences resulting from the elimination of the investments against the book net equity at the date of the first consolidation is allocated to the higher values attributed to the assets and liabilities, and the residual part to goodwill. On the first-time adoption of IFRS, the Group has chosen not to apply IFRS 3 (Business combinations) in retrospective manner for the acquisitions made prior to January 1st, 2004;

c) The payables/receivables and costs/revenues between consolidated companies and the gains/losses resulting from inter-company operations are eliminated, as are the effects of mergers and the sale of business units between companies in the consolidation scope.

As illustrated in Attachment 2, at December 31, 2013 the Group is comprised solely of subsidiaries owned directly or indirectly by the Parent Company BasicNet S.p.A., or jointly controlled; there are no associated companies in the Group.


EXPLANATORY NOTES

52

Control is considered as the power to determine, directly or indirectly, the financial and operating policies of an entity so as to obtain benefits from its activities. In the evaluation of control, consideration is taken of the existence and the effect of potential voting rights that are effectively exercisable or convertible. Subsidiaries are consolidated from the date in which control occurs until the moment in which control terminates.

Associated companies are companies in which the Group exercise a significant influence in determining the financial and operating policies, as defined by IAS 28 - Investments in Associates, but does not hold control or joint control. An investment in an associated company is initially recognised at cost and thereafter under the equity method, in which the Group share of profits and losses of the investee, realised from the date of its acquisition, is recorded in the consolidated income statement.

The Joint Ventures are represented by a contractual agreement between the participants which establish the joint control of the business operations of the company. The entities subject to joint control are consolidated under the proportional method.

Consolidation scope

The consolidation scope includes the Parent company BasicNet S.p.A. and the Italian and foreign subsidiaries in which BasicNet S.p.A. exercises direct, or indirect, control. Attachment 2 reports the consolidated companies under the full consolidation method and the proportional consolidation method.

The complete list of Group companies, registered office, corporate purpose, share capital and direct and indirect holdings are reported in the present Explanatory Notes.

Information by business segment and geographic area

Three operating segments were identified within the BasicNet Group: i) license and trademark management, (ii) proprietary licensee and (iii) property management. The relevant information is reported in Note 7.

The information by geographic area has significance for the Group in relation to royalty income and direct sales, and therefore was included for the two respective items. The breakdown of licensee aggregate sales by geographic area, from which the royalties derive, is reported in the Directors’ Report.

5. ACCOUNTING PRINCIPLES

The present financial statements were prepared on the going concern basis, and in accordance with the accruals principle. The financial statements are presented in Euro and all values are rounded into thousands of Euro.

The main accounting principles adopted in the preparation of the consolidated financial statements at December 31, 2013 are disclosed below:

Revenue recognition

Revenues derive from Group operations in the ordinary course of business and comprise revenues from sales and services. Revenues are recognised net of sales tax, returns and discounts.


EXPLANATORY NOTES

53

Revenues are recognised in accordance with the probability that the Group will receive economic benefits and the amount can be determined reliably. In particular, revenues from the sale of goods are recognised when the significant risks and benefits of the ownership of the goods are transferred to the buyer, the sales price has been agreed or determinable and collection of the receivable is expected. This moment generally corresponds with the transfer of ownership which coincides, normally, with the shipment or delivery of the goods. Sales to Group brand stores managed by third parties, on consignment, are recognised on the sale of the goods by the store to the final consumer, in accordance with IAS 18 – Revenues.

Royalties and sourcing commissions are recognised on an accruals basis in accordance with the underlying contracts.

Recognition of costs and expenses

Costs and expenses are recognised in accordance with the accruals principle.

Costs associated with sponsorship contracts paid each year are recognised in line with the contractual conditions.

Cost relating to the preparation and presentation of sample collections are recognised in the income statement in the year in which the sales of the relative collections are realised. Any differences are recorded through accruals.

Advertising campaign costs undertaken to drive orders by the salesforce, in accordance with current interpretations of IAS/IFRS, are directly expensed at the moment of the campaign, rather than in correlation to the relative revenues, which will only be recognised on the subsequent shipment of the orders received, although this second method better illustrates the correlation with the advertising campaign activity.

Interest income and expenses, and income and charges

Interest income and expenses and other income and expenses are recorded and shown in the financial statements on the accrual basis.

In accordance with IAS 23 – Borrowing costs: the financial charges directly attributable to the purchase, construction and production of the asset which requires a significant amount of time before use or sale are capitalised together with the value of the asset. Such an event has not arisen up to the present moment for the Group. If these conditions are not met the financial charges are expensed directly to the income statement.

Transactions in foreign currencies

The receivables and payables originally expressed in foreign currencies are translated into Euro at the exchange rate when the transaction originated. Exchange differences arising on collections and payments in foreign currencies are recorded in the income statement.

Revenues and income, costs and charges related to currency transactions are recorded at the exchange rate at the transaction date.

At the end of the period, the assets and liabilities valued in foreign currencies, with the exception of fixed assets, are recorded at the exchange rates at the balance sheet date and the relative gains or losses on exchange are recorded in the income statement.

Income taxes

Current income taxes include all the taxes calculated on the assessable income of the Group. Income taxes are recognised in profit and loss, except where they relate to items charged or credited directly to equity, in which case the tax effect is also recognised directly in equity.


EXPLANATORY NOTES

54

Deferred taxes are calculated on all the temporary differences arising between the assessable income of an asset or liability and the relative book value in the consolidated financial statements. Deferred tax assets, including those relating to losses carried forward, for the portion not offset by deferred tax liabilities, are recognised only for those amounts for which it is probable there will be future assessable income to recover the amounts. Deferred tax assets and liabilities are determined with the tax rates that are expected to be applied, in accordance with the regulations of the countries in which the Group operates, in the years in which the temporary differences will be realised or settled. The deferred tax assets and liabilities are offset when the income tax is applied by the same fiscal authority and when there is a legal right of compensation.

The Parent Company adhered to the national tax consolidation in accordance with Article 117 and thereafter of the CFA – Presidential Decree No. 917 of December 22, 1986 together with all of the wholly-owned subsidiary companies. The tax consolidation permits the companies to record, and then transfer, the current income taxes also in the case of tax losses, recognising, a receivable from BasicNet S.p.A.; inversely in the case of taxable income, the current taxes are recorded as a payable to the parent company. The contractual agreement between the parties provides for the total recognition of the amount calculated on the tax losses or profits transferred at the tax rate in force.

Other taxes not related to income, such as taxes on property and share capital, are included under operating charges.

Earnings per share/ Diluted earnings per share

Earnings per share is calculated dividing the profit or loss attributable to the shareholders of the Parent Company by the weighted average ordinary shares in circulation during the period.

The diluted earnings per share is calculated dividing the profit or loss attributable to the shareholders of the Parent Company by the average weighted number of shares outstanding, taking into account the effects of all the potential ordinary shares with dilution effects. In 2013, there were no diluting effects on the shares.

Provisions and contingent liabilities

The Group may be involved in legal and tax disputes, concerning specific issues and in various jurisdictions. Considering the uncertainties relating to these issues, it is difficult to predict with certainty any future payments required. In addition, the Group has instigated legal disputes for the protection of its Trademarks, and of its products, against counterfeit products. The cases and disputes against the Group often derive from complex legal issues, which are often subject to varying degrees of uncertainty, including the facts and circumstances relating to each case, jurisprudence and different applicable laws.

In the normal course of business, Management consults with its legal consultants and experts on legal matters.

The Group accrues a liability against disputes when it considers it is probable that there will be a financial payment made and when the amount of the losses arising can be reasonably estimated.

The contingent liabilities are not recorded in the financial statements, but are reported as a disclosure in the Notes unless the probability is remote. In accordance with paragraph 10 of IAS 37 – Provisions, contingent liabilities and contingent assets a contingent liability is (a) a possible obligation which derives from past events and whose existence will be confirmed only on the occurrence or otherwise of one or more future uncertain events, not entirely under the control of the enterprise, or (b) a current obligation which derives from past events but which cannot be recorded in the financial statements as the payment is improbable or cannot be reliably estimated.


EXPLANATORY NOTES

55

Use of estimates

The preparation of the financial statements and the relative notes in application of IFRS require that management make estimates and assumptions on the values of the assets and liabilities in the financial statements and on the information relating to the assets and contingent liabilities at the balance sheet date. The actual results could differ from such estimates.

Estimates are utilised to measure intangible and tangible assets subject to impairment tests as described above, in addition to recognise provisions on doubtful debts, inventory obsolescence, amortisation and depreciation, write-down of assets, employee benefits and income taxes.

The estimates and assumptions are reviewed periodically and the effects of all variations are immediately recognised in the income statement.

Intangible fixed assets

An intangible asset is a non-monetary asset, identifiable and without physical substance, controllable and capable of generating future economic benefits. Intangible assets are recognised at purchase and/or production cost, including the costs of bringing the asset to its current use net of accumulated amortisation and any loss in value. Amortisation begins when the asset is available for use and is recognised on a straight-line basis over the residual estimated useful life of the asset.

Software

Software acquired and IT programmes developed internally are amortised over five years, while the costs incurred to maintain or upgrade the original operational standard are expensed in the year and are not capitalised.

Development Costs

Development costs are capitalised when the capacity to generate future economic benefits is demonstrated and the other conditions required by IAS 38 – Intangible assets are satisfied.

Trademarks and patents

The trademarks Kappa, Robe di Kappa, Superga and K-Way are considered intangible assets with indefinite useful life; as such these assets are not amortised but subject to an impairment test at least annually. This depends on the strategic positioning reached whereby it is not currently possible to predict a time limit on the generation of future cash flow streams.

The trademarks Lanzera, Jesus Jeans, AnziBesson and Sabelt, which have not yet reached a position similar to those of the principal brands, are amortised over a period of 20 years.

The patent rights are amortised over ten years.

Other intangible assets

Other intangible assets recognised on acquisition are recorded separately from goodwill, if their fair value can be determined on a reliable basis.

Goodwill

In the case of business combinations, the assets, the liabilities and the contingent liabilities acquired and identifiable are recorded at their fair value at the acquisition date. The positive difference between the acquisition cost and the portion held by the Group of the present value of the assets and liabilities is classified as goodwill and recorded in the financial statements as an intangible asset. Any negative difference (“negative goodwill”) is recognised in the income statement at the acquisition date.


EXPLANATORY NOTES

56

Goodwill is not amortised, but is subject annually, or more frequently if specific events or circumstances indicate the possibility of having incurred an impairment, to verifications of any reduction in value, as provided by IAS 36 Reduction in value of assets. After initial recognition, goodwill is measured at cost less any loss in value. The impairment of goodwill may not be written back.

This category includes the amounts paid by the Group to sub-enter into the contractual positions of directly managed and franchising stores. Such commercial goodwill recorded in the consolidated financial statements is considered an intangible asset with an indefinite useful life and is therefore not amortised. An impairment test is undertaken at least annually through the comparison of the carrying value and the higher value between the value in use and the fair value less selling costs, this latter also determined with reference to valuations made by independent experts. Goodwill related to the acquisition of business unit rental contracts is amortised over the duration of the contracts.

Property, plant and equipment

Property, plant and equipment are recorded at purchase or production costs, including accessory charges and direct and indirect costs, for the amount reasonably attributable to the assets.

Subsequent expenditures are only capitalised where they increase the future economic benefits of the asset to which they relate. All other expenditures are expensed as incurred.

Property, plant and equipment are amortised on a straight-line basis over the estimated useful life of each asset. The depreciation rates by asset category are shown below:

Description Estimated useful life

Years

Property 33

Plant and machinery 8

Furniture and furnishings 5-8

Motor vehicles 4

EDP 5-8

Fixed assets which at the balance sheet date are lower than the book value are recorded at this lower value, which however may not be maintained at this value in subsequent periods if the reasons for the adjustment no longer exist.

Ordinary maintenance costs are fully charged to the income statement.

Advances and costs for property, plant and equipment in progress which are not yet utilised in the operating activities are reported separately.

The historic value of land is not depreciated.

Leased assets

Property, plant and equipment acquired through finance lease contracts are recognised under the finance method as per IAS 17 – Leasing and recorded under assets at the purchase price decreased by depreciation.

The depreciation of these assets is reflected in the consolidated financial statements applying the same criteria as for the fixed assets to which the lease contracts refer.


EXPLANATORY NOTES

57

Within liabilities a payable is recorded, under short-term and medium term, towards the leasing company; the lease payments are reversed from expenses for the use of third party assets and the financial charges for the period are recognised on an accruals basis.

Impairment

The carrying value of the assets of the Group are measured at each reporting date to determine whether there has been a loss in value, in which case an estimate is made of the recoverable value of the asset. A loss in value (impairment) is recorded in the income statement when the carrying value of an asset or a cash-generating unit exceeds its recoverable value.

The indefinite intangible assets (including goodwill) are tested annually and whenever there is an indication of a possible loss, in order to determine whether a loss in value has occurred.

Measuring recoverable amount

The recoverable value of a non-financial asset is the higher of the fair value less costs to sell and the value in use. For the determination of the value in use, the future cash flows are discounted utilising a rate which reflects the current market value of money and of the related risks of the activity. In the case of activities which do not generate cash flows sufficiently independent, it is necessary to calculate the recoverable value of the cash-generating unit to which the asset belongs.

Write-back of value

The value is recovered when changes take place in the valuations to determine the recoverable value excluding goodwill. The recoverable value is recorded in the income statement adjusting the book value of the asset to its recoverable value. This latter must not be above the value which would have been determined, net of depreciation, if no loss in value of the asset had been recorded in previous years.

Investments

Investments in associated companies are measured under the equity method. The share of cost exceeding the net equity of the investee at the acquisition date is treated in a similar manner as that described for the consolidation criteria.

Other investments not consolidated are measured under the cost method, which is reduced for loss in value, in the case in which the fair value may not be reliably determined, as concerning non-listed companies. The original value is restored in future years should the reason for the write-down no longer exist.

Financial receivables consisting of loans are recorded at their estimated realisable value.

Net inventories

Inventory is valued under the average weighted cost method.

Inventories are measured at the lower of purchase or production cost and their net realisable value.

Inventories include incidental charges and direct and indirect costs that can be reasonably allocated. Obsolete and slow-moving inventories are written down in relation to their possible utilisation or realisable value.


EXPLANATORY NOTES

58

Trade receivables

Receivables recorded under current assets are stated at their nominal value, which substantially coincides with the amortised cost. The initial value is subsequently adjusted to take into account any write-downs which reflect the estimate of the losses on receivables, determined based on a specific provision on doubtful debts and a general provision based on past experience. Medium/long-term receivables which include an implicit interest component are discounted utilising an appropriate market rate. Receivables transferred without recourse, in which all the risks and benefits substantially are transferred to the factoring company, are reversed in the financial statements at their nominal value.

Cash and cash equivalents

The liquid assets principally relate to current bank accounts and cash. They are recorded for amounts effectively available at year end.

The cash equivalents are invested in highly liquid temporary financial instruments.

Accrued income and prepaid expenses

The account includes amounts related to two accounting periods, in accordance with the accruals concept.

Treasury shares

Treasury shares are recognised as a deduction from equity. The original cost of the treasury shares and the revenues deriving from any subsequent sale are recognised as equity movements.

Provisions for risks and charges

Provisions for risks and charges are recorded in the balance sheet only when a legal or implicit obligation exists deriving from a past event that determines the commitment of resources to produce economic benefits for their compliance and a reliable estimate of the amount can be determined.

Employee benefits

The Post-Employment Benefit in accordance with Italian legislation is quantified as a defined benefit plan and is measured in accordance with the “Projected Unit Credit Method”.

From January 1, 2007, this liability refers exclusively to the portion of the Post-Employment Benefit, matured up to December 31, 2006, which following the complementary pension reform (Legislative Decree No. 252 of December 5, 2005) continues to constitute an obligation of the company. Following the entry into force of the above-mentioned reform as enacted by Law No. 296 of December 27, 2006 (2007 Finance Law), the liability, as concerning services already completely matured, was restated without applying the pro-rata of the employment service and without considering, in the actuarial calculation, the components relating to future salary increases.

On June 16, 2011, IASB issued an amendment to IAS 19 – Employee benefits, applicable to the annual financial statements for the year 2013, with restatement of the 2012 comparative figures in accordance with IAS 8 – Accounting policies, changes in accounting estimates and errors. The new version of IAS 19 requires, in particular, for the post-employment benefits, the recognition of the changes of the actuarial gains/losses under other items of the Comprehensive Income Statement, thus eliminating the other options previously permitted, including that adopted by the BasicNet Group, which recorded these items in the profit and loss for the year. The cost relating to employment services, as well as the interest on the “time value” component in the actuarial calculations will remain in the profit and loss account. These


EXPLANATORY NOTES

59

amendments resulted in the restatement of the consolidated income statement, consolidated comprehensive income statement and the cash flow statement for the year 2012 reported for comparative purposes (“restated”); there was no impact on the balance sheet.

The portion of the Post-Employment Benefit paid to a complementary pension fund is considered a defined contribution plan as the obligation of the company towards the employee ceases with the payment of the amount maturing to the funds. Also the portion of the Post-Employment Benefit paid to the INPS Treasury fund is recorded as a defined contribution plan.

Payables

Financial payables are recorded at their nominal value which approximates the amortised cost. The book value of the trade and other payables at the balance sheet date approximates their fair value.

Derivative instruments and hedge accounting

The BasicNet Group utilises derivative financial instruments to hedge interest rates on some loans and to hedge against fluctuations in the Euro/USD exchange rates on the purchases of products for sale, not adequately hedged by royalties and sourcing commission income.

These instruments are initially recorded at their fair value, and subsequently measured according to whether they are “hedged” or “not hedged” as per IAS 39.

It is recalled that the BasicNet Group does not undertake derivative contracts for speculative purposes.

The hedging may be of two types: Fair value hedges; Cash flow hedges.

The BasicNet Group, before signing a hedge contract, undertakes a close examination of the relationship between the hedge instrument and the item hedged, in view of the objectives to reduce the risk, also evaluating the existence and the continuation over the life of the derivative financial instrument of the effectiveness requirements, necessary for the hedge accounting.

After their initial recognition, the derivatives are accounted as follows:

a) Fair value hedges

The changes in their fair value are recognised in the income statement, together with the changes in the fair value of the relative assets and liabilities hedged. The Group does not utilise fair value hedge instruments.

b) Cash flow hedges

The part of the profit or loss of the hedge instrument, considered effective, is recorded directly in the comprehensive income statement; the non-effective part is however recorded immediately in the income statement. The accumulated amounts in the comprehensive income statement are recorded in the income statement in the year in which the scheduled hedge operation matures or the instrument hedged is sold, or when the effectiveness requirements for hedge accounting no longer exist.


EXPLANATORY NOTES

60

c) Derivative financial instruments which do not have the effectiveness requirements for hedge accounting

The derivative financial instruments which do not comply with the requirements of IAS 39 for the identification of the hedge, where present, are classified in the category of financial assets and liabilities measured at fair value through the profit and loss account. The group does not utilise financial instruments not for hedging purposes.

Hierarchy of Fair Value according to IFRS 7.

IFRS 7 requires that the classification of financial instruments measured at fair value is determined based on the quality of the input sources used in the valuation.

The IFRS 7 classification implies the following hierarchy:

- level 1: determination of fair value based on prices listed (“unadjusted”) in active markets for identical assets or liabilities;

- level 2: determination of fair value based on other inputs than the listed prices included in “level 1” but which are directly or indirectly observable. This category includes the instruments with which the Group mitigates the risk deriving from fluctuations in interest rates and currencies;

- level 3: determination of the fair value based on valuation models whose input is not based on observable market data (“unobservable inputs”). There are no financial instruments valued under this method.

-

6. OTHER INFORMATION

The subsequent events to the end of the year and the outlook for the current year are reported in the Directors’ Report.


EXPLANATORY NOTES

61

EXPLANATORY NOTES (IN EURO THOUSANDS)

7. DISCLOSURE BY OPERATING SEGMENT

The BasicNet Group identifies three operating segments:

“License and Trademarks”, which involves the management of overseas licensees and “sourcing centres” by the following Group companies: BasicNet S.p.A., Basic Properties B.V., Basic Properties America, Inc., Basic Spain S.L., BasicNet Asia Ltd., Basic Trademark S.A., Superga Trademark S.A., Jesus Jeans S.r.l., AnziBesson Trademark S.r.l. and Fashion S.p.A.;

“Proprietary licensees”, which involves the direct management of the sales channels through BasicItalia S.p.A. (proprietary licensor), RdK0 S.r.l., BasicOutlet S.r.l. and BasicCRS S.r.l. both in the wholesale and retail channel;

“Property”, which involves the management of the building at Turin – Largo Maurizio Vitale 1, known as “Basic Village”.


EXPLANATORY NOTES

62

FY 2013

Licenses and trademarks

Proprietary

licensees

Property

Inter-segment eliminations

Consolidated

Direct sales – third parties 321 111,375 - - 111,696 Direct sales – inter-segment 1,187 169 2 (1,358) -

(Cost of sales – third parties) (1,550) (67,456) (2) - (69,008) (Cost of sales – inter-segment) (22) (1,078) - 1,100 - GROSS MARGIN (64) 43,010 - (258) 42,688

Royalties and sourcing commissions – third parties

39,804 2 - - 39,806

Royalties and sourcing commissions – inter-segment 6,233 - - (6,233) -

Other income - third parties 11,273 809 782 - 12,864 Other income – inter-segment 901 5,333 2,907 (9,141) -

(Sponsorship and media costs – third parties) (3,305) (11,294) - - (14,599) (Sponsorship and media costs – inter-segment) (2,135) (5) - 2,140 -

(Personnel costs – third parties) (8,504) (10,657) - - (19,161) (Personnel costs – inter-segment) - - - - -

(Selling, general and administrative costs, royalties expenses – third parties)

(11,811)

(25,547)

(1,473)

-

(38,831)

(Selling, general and administrative costs, royalties expenses – inter-segment) (5,468) (7,974) (50) 13,492 -

Depreciation & amortisation (1,988) (3,173) (879) - (6,040)

Write-downs and other provisions - (4,500) - - (4,500)

EBIT 24,936 (13,996) 1,287 - 12,227

Financial income – third parties 280 937 - - 1,217 Financial income – inter-segment 40 4 6 (50) -

(Financial charges – third parties) (1,822) (2,556) (686) - (5,064) (Financial charges – inter-segment) - (44) (6) 50 -

(Investment impairments – third parties) - - - - - (Investment impairments – inter-segment) - - - - - PROFIT BEFORE TAXES 23,434 (15,655) 601 - 8,380

Income taxes (7,229) 3,610 (260) - (3,879)

Non-recurring tax charges - - - - -

NET PROFIT 16,205 (12,045) 341 - 4,501

Significant non-cash items: Depreciation & amortisation (1,988) (3,173) (879) - (6,040) Write-downs - (4,500) - - (4,500) Total non-cash items (1,988) (7,673) (879) - (10,540)

Investments in non-current assets (1,123) (2,501) (233) - (3,857) Segment assets and liabilities:

Assets 184,331 112,874 21,938 (116,177) 202,966

Liabilities 95,489 102,357 18,100 (80,595) 135,351


EXPLANATORY NOTES

63

FY 2012 (restated)

Licenses and trademarks

Proprietary

licensees

Property

Inter-segment eliminations

Consolidated

Direct sales – third parties 503 109,521 2 - 110,026 Direct sales – inter-segment 1,147 227 2 (1,376) -

(Cost of sales – third parties) (1,322) (69,093) (2) - (70,417) (Cost of sales – inter-segment) (62) (1,055) - 1,117 GROSS MARGIN 266 39,600 2 (259) 39,609

Royalties and sourcing commissions – third parties

42,412 - - - 42,412

Royalties and sourcing commissions – inter-segment 6,286 - - (6,286) -

Other income - third parties 1,355 1,769 866 - 3,990 Other income – inter-segment 901 8,407 2,872 (12,180) -

(Sponsorship and media costs – third parties) (1,548) (16,470) - - (18,018) (Sponsorship and media costs – inter-segment) (5,220) (3) - 5,223 -

(Personnel costs – third parties) (7,652) (11,398) (1) - (19,051) (Personnel costs – inter-segment) - - - - -

(Selling, general and administrative costs, royalties expenses – third parties)

(10,308) (24,894) (1,597) - (36,799)

(Selling, general and administrative costs, royalties expenses – inter-segment) (5,451) (8,000) (51) 13,502 -

Depreciation & amortisation (1,868) (4,178) (854) - (6,900)

EBIT 19,173 (15,167) 1,237 - 5,243

Financial income – third parties 96 1,385 1 - 1,482 Financial income – inter-segment 114 - 11 (125) -

(Financial charges – third parties) (1,252) (2,863) (757) - (4,872) (Financial charges – inter-segment) - (114) (11) 125 -

(Investment impairments – third parties) - - - - - (Investment impairments – inter-segment) (9,920) - - 9,920 - PROFIT BEFORE TAXES 8,211 (16,759) 481 9,920 1,853

Income taxes (4,897) 3,572 (222) - (1,547)

Non-recurring tax charges (17,048) (424) - - (17,472)

NET PROFIT (13,734) (13,611) 259 9,920 (17,166)

Significant non-cash items: Depreciation & amortisation (1,868) (4,178) (854) - (6,900) Write-downs (200) (2,200) - - (2,400) Total non-cash items (2,068) (6,378) (854) - (9,300)

Investments in non-current assets (3,146) (4,240) (246) - (7,632) Segment assets and liabilities:

Assets 190,685 125,362 21,581 (131,336) 206,292

Liabilities 118,067 121,642 18,511 (114,760) 143,460


EXPLANATORY NOTES

64

For the “License and Trademark” sector the royalty and sourcing commission amounted to Euro 39.8 million (Euro 42.4 million in 2012), reflecting the commercial events described in the Directors’ Report, in addition to the destocking activity of some important European licensees, which resulted in a lowering of the sourcing commission; the other income includes the signing fee of USD 12 million (Euro 9.4 million) recognised to Basic Trademarks S.A. by the South Korean licensee for the brands Kappa and Robe di Kappa; the segment reported a profit of Euro 16.2 million, an improvement on the loss of Euro 13.8 million in the previous year.

The “Proprietary Licensee” segment comprises BasicItalia S.p.A. and its subsidiaries RdK0 S.r.l., BasicOutlet S.r.l. and BasicCRS S.r.l., with revenues in 2013 of Euro 111.4 million, compared to Euro 109.5 million in 2012, and a loss of Euro 12 million compared to a loss of Euro 13.6 million in the previous year which, as reported in the Directors’ Report, includes write-down of assets and other provisions of Euro 4.5 million, against fine tuning activities undertaken on the Italian market.

The “Property” segment, relating to the building at Largo Maurizio Vitale 1, Turin, reports a profit of Euro 341 thousand compared to a profit of Euro 259 thousand in the previous year.

8. DIRECT CONSOLIDATED SALES

The breakdown of direct consolidated sales by geographic area is reported below:

FY 2013 FY 2012

Italy 104,579 103,069 EU countries other than Italy 5,351 5,461 Rest of the World 1,766 1,496

Total direct consolidated sales 111,696 110,026

Direct sales revenues relate to merchandise sold by BasicItalia S.p.A., RdK0 S.r.l. and BasicOutlet S.r.l. through National and Regional Servicing Centres and directly to the public (Euro 111.5 million) and by BasicNet S.p.A. for sample merchandise sales (Euro 0.1 million). Sales on the home market accounted for 93.6% of sales, while approx. 4.79% of sales were in other EU countries and the remainder 1.58% outside the EU.

9. COST OF SALES

FY 2013 FY 2012

Goods purchased – Overseas 47,822 47,553 Goods purchased – Italy 5,006 6,767 Samples purchased 1,105 1,091 Accessories purchased 105 226 Freight charges and accessory purchasing cost 6,596 6,692 Packing 384 431 Change in inventory of raw materials, ancillary, consumables and goods

2,838 1,752

Other 5,152 5,905

Total cost of sales 69,008 70,417


EXPLANATORY NOTES

65

The “goods purchased” refer to the finished products acquired by BasicItalia S.p.A. Goods purchase on the Italian market decreased on the previous year following the destocking activity during 2012. Sample purchases were made by BasicNet S.p.A. for resale to the licensees. The account “other” includes goods transportation costs, inventory provision and other minor amounts.

10. ROYALTIES AND SOURCING COMMISSIONS

“Royalties income and sourcing commission” refer to royalty fees for the trademark licenses in the countries where the licenses have been assigned or recognised by authorised sourcing centres.

The changes in the year are commented upon in the Directors’ Report.

The breakdown by geographic area is reported below:

FY 2013 FY 2012

Europe (EU and non-EU) 17,984 19,962 The Americas 3,298 2,659 Asia and Oceania 15,302 16,759 Middle East, Africa 3,222 3,032

Total 39,806 42,412

11. OTHER INCOME

FY 2013 FY 2012

Rental income 513 549

Recovery of condominium expenses 224 275

Income from promo sales 1,789 846

Other income 10,338 2,320

Total other income 12,864 3,990

The account “other income” in 2013 includes Euro 9.4 million (USD 12 million) relating to the “non-refundable signing fee” paid by the South Korean licensee against the renewal of the license contract, fully received in the year. The remainder of the “other income” includes contributions received from licensees on the sponsorship deals undertaken by the Group, prior year accruals’ reversals and other minor items. “Income from promo sales” refer to income from the right to use trademarks for commercialisation of products in promotion activities, which are of a non-recurring nature.

12. SPONSORSHIP AND MEDIA COSTS

FY 2013 FY 2012

Sponsorship and marketing 13,206 16,434 Advertising 858 1,103 Promotional expenses 535 481

Total sponsorship and media costs 14,599 18,018


EXPLANATORY NOTES

66

The account “sponsorship” refers to communication investments incurred directly to which the Group contributes, described in detail in the Directors’ Report.

“Advertising costs” refer to billboard advertising and press communication campaigns.

13. PERSONNEL COSTS

FY 2013 FY 2012

Wages and salaries 13,808 13,728

Social security 4,427 4,428

Post-employment benefits 926 895

Total personnel costs 19,161 19,051

The average number of employees at the reporting date, by category, is reported in the table below:




Male/Female Total Male/Fema

le Average Male/Female Total Male/Female Average

Executives 12 / 8 20 49 / 49 49 12 / 8 20 48 / 48 48

Managers 1 / - 1 51 / - 51 1 / - 1 50 / - 50

White-collar 144 / 319 463 34 / 36 36 153 / 358 511 33 / 36 35

Blue-collar 15 / 13 28 43 / 42 42 18 / 15 33 41 / 42 42

Total 172 / 340 512 35 / 36 36 184 / 381 565 35 / 36 35

The reduction in the Human Resources is related to a normal turnover of staff and was particularly significant at the end of the period, and therefore did not have a significant effect on the relative cost.

14. SELLING, GENERAL AND ADMINISTRATIVE COSTS, AND ROYALTIES EXPENSES

FY 2013 FY 2012

Selling and royalty service expenses 9,606 10,267

Rental, accessory and utility expenses 11,226 10,924

Commercial expenses 3,126 3,007

Directors and Statutory Auditors emoluments 2,750 2,582

Doubtful debt provision 2,963 2,400

Other general expenses 9,160 7,619

Total selling, general and administrative costs, and royalties expenses

38,831 36,799


EXPLANATORY NOTES

67

“Selling and royalty expenses” principally include commissions to agents of the subsidiary BasicItalia S.p.A. and royalties on sports team merchandising contracts and co-branding operations.

“Rental and accessory” expenses increased due to the opening of new stores in the previous year. The effects from the restructuring operation, reported in Note 16, will be seen from the year 2014.

“Commercial expenses” include costs relating to selling activities, comprising product catalogue costs, trade fairs and exhibitions, communication consultants for advertising campaigns, stylists, graphics and commercial and travel expenses.

The company’s remuneration policy, as well as Directors and Statutory Auditors emoluments for the offices held, pursuant to Article 78 of Consob Regulation No. 11971/97 and thereafter are reported in the Remuneration Report pursuant to Article 123-ter of the CFA which is available on the company’s internet site www.basicnet.com, to which reference should be made.

The doubtful debt provision in the year increased on the previous year due to a higher provision for insolvency risks, related to the current liquidity crisis within the general economy.

The account “other general expenses” includes legal and professional fees, bank charges, other taxes, consumption materials, hire charges, and corporate and other minor expenses. The increase is related to non-recurring technical, legal and tax consultant fees.

15. AMORTISATION AND DEPRECIATION

FY 2013 FY 2012

Amortisation 2,890 3,819

Depreciation 3,150 3,081

Total amortisation & depreciation 6,040 6,900

The reduction in the amortisation of intangible fixed assets is due to the level of investments held, but in particular impacted by the write-down of some assets, as per Note 16.

16. WRITE-DOWNS AND OTHER PROVISIONS

The fine tuning activities undertaken at some of the Italian subsidiaries, in order to improve margins, resulted in the streamlining of some general cost centres, which were in part already reflected in the margin in the second part of the year. In particular some processes were streamlined, such as procurement, the value proposition, logistics and the rightsizing of the directly managed stores. Therefore a provision was recognised of Euro 4.5 million with reference to the entire amount incurred for leasehold improvements on stores within the operation, and to any key money paid and other related charges.


EXPLANATORY NOTES

68

17. NET FINANCIAL INCOME (CHARGES)

FY 2013 FY 2012

Interest income 15 23

Current account interest (1,487) (1,727)

Commercial interest expenses (27) (222)

Interest on medium/long debt (1,319) (1,389)

Property lease interest (156) (120)

Other (430) (246) Total financial income and charges (3,404) (3,681)

Exchange gains 1,189 1,467

Exchange losses (1,632) (1,176) Total exchange gains and losses (443) 291

Total financial income/(charges) (3,847) (3,390)

Bank interest expense decreased due to the reduction in the bank debt. Net exchange losses were recorded due to fluctuations in the US currency only in part offset by specific hedges on financial markets.

18. INCOME TAXES

“Income taxes” refer to current income taxes of approx. Euro 3.9 million and approx. Euro 60 thousand of deferred tax income.

19. NON-RECURRING TAX CHARGES

As already reported in the Directors’ Report, in December 2012 an agreement was reached with the Tax Administration by the subsidiary Basic Trademark S.A., in relation to the tax position for the year 2006, extended during 2013 also to Superga Trademark S.A., for the years 2007 and 2008, to BasicNet S.p.A for the years 2007 and 2009 and to BasicItalia S.p.A. for the years 2007, 2009 and 2010. These agreements are within the framework of an overall settlement of the fiscal position of some foreign subsidiaries of BasicNet S.p.A. (Basic Trademark S.A., Superga Trademark S.A. and Basic Properties B.V.), in part involving the Italian holding, which has still to be formalised but whose financial impact has been fully expensed in the previous year.

In particular, the Tax Administration has reconstructed some circumstances which could, in their opinion, consider the fiscal residence of some European Group companies, in the period 2006-2009, to be interpreted as located in Italy and therefore the income should be taxed in Italy instead of in Luxemburg and in Holland.

Although contesting the considerations of the Tax Administration, the Group undertook an evaluation of a possible overall settlement of the case, in order to prevent a long and onerous dispute and benefit from an amnesty for a reduction in administrative sanctions.

The total charge expensed by the Group in 2012 of Euro 17.5 million for taxes, sanctions and interest was composed of Euro 12.8 million relating to the years already settled with the Tax Administration, Euro 0.3 million of related costs and Euro 4.4 million estimated with the assistance of the Group’s tax advisors for the overall settlement of the years not yet formalised.


EXPLANATORY NOTES

69

The charge was recognised in the previous year’s financial statements in a separate income statement account, in accordance with paragraphs 85, 97 and 17 of IAS 1 – Presentation of financial statements.

In the balance sheet the “certain” liabilities against years settled was recorded under “tax payables” (Note 38) net of that already paid as at December 31, 2013 (Euro 5.6 million), while the liabilities estimated for the years still to be formally settled, recorded under “provisions for risks and charges”, did not change during the year (Note 32).

From a financial viewpoint the Group benefitted from the payment in three years, commencing with the first payment date of the first instalment.

20. EARNINGS PER SHARE

The basic earnings per share, at December 31, 2013, is calculated dividing the net result attributable to the shareholders of the Group by the weighted average number of ordinary shares outstanding during the year:

FY 2013 FY 2012

Net profit attributable to owners of the Parent 4,501,068 (17,166,362)

Weighted average number of ordinary shares 57,612,315 58,075,844

Basic earnings per ordinary share 0.0781 (0.2985)

At December 31, 2013 there were no “potentially diluting” shares outstanding, therefore the diluted earnings per shares coincide with the earnings per share.

The change in the weighted average number of ordinary shares outstanding between 2012 and 2013 relates to the number of treasury shares acquired in the year.


EXPLANATORY NOTES

70

ASSETS

21. INTANGIBLE ASSETS

December 31, 2013 December 31, 2012 Changes

Concessions, trademarks and similar rights 34,882 32,559 2,323

Software programmes 4,320 4,178 (142)

Other intangible assets 2,138 4,135 (1,997)

Industrial patents 15 20 (5)

Total intangible assets 41,355 40,892 463

The changes in the original costs of the intangible assets were as follows: Concessions,

trademarks and similar

rights

Software

programmes

Other intangible

assets

Industrial patents

Total

Historical cost at 1.1.2012

43,652

29,531

7,806

43

81,032

Additions 465 2,283 1,642 9 4,399

Disposals and other changes 13 (248) (261) - (496)


44,130

31,566

9,187

52

84,935

Additions 2,709 1,885 294 - 4,888

Disposals and other changes (57) 248 (210) - (19)

Write-downs - - (1,628) - (1,628)


46,782

33,699

7,643

52

88,176

The changes in the relative accumulated amortisation provisions were as follows: Concessions,

trademarks and similar rights

Software

programmes

Other intangible

assets

Industrial patents

Total Acc. Amort. at 1.1.2012

(11,283)

(25,410)

(4,179)

(27)

(40,899)

Amortisation (288) (1,978) (857) (5) (3,128)

Disposals and other changes - - (16) - (16)

Acc. Amort. at 31.12.2012

(11,571)

(27,388)

(5,052)

(32)

(44,043)

Amortisation (329) (1,991) (453) (5) (2,778)

Disposals and other changes - - - - -

Write-downs - - - - -

Acc. Amort. at 31.12.2013

(11,900)

(29,379)

(5,505)

(37)

(46,821)


EXPLANATORY NOTES

71

The net book value of intangible assets is reported below:

Concessions,


Software

programmes

Other intangible

assets

Industrial patents

Total Opening net book value at January 1, 2012

32,369

4,121

3,627

16

40,133

Additions 478 2,035 1,381 9 3,903

Amortisation (288) (1,978) (873) (5) (3,144)

Closing net book value at Dec. 31, 2012

32,559

4,178

4,135

20

40,892

Additions 2,709 1,885 294 - 4,888

Disposals and other changes

(57)

248

(210)

-

(19)

Amortisation (329) (1,991) (453) (5) (2,778)

Write-downs - - (1,628) - (1,628)

Closing net book value at Dec. 31, 2013

34,882

4,320

2,138

15

41,355

At December 31, 2013 the intangible assets report investments of Euro 4.9 million, amortisation of Euro 2.8 million and write-downs of Euro 1.6 million.

The most significant investment in the year related to the “concessions, trademarks and similar rights” and concern the payment of a supplement to the original price paid for the purchase of the K-Way trademark, amounting to Euro 2.2 million, within the framework of an agreement at the end of July with the Bankrupt Formula Sport Group, in which the outcome of a Legal Dispute before the Court of Appeal was awaiting a ruling arising from the ordinary revocatory action, in relation to the acquisition of the K-Way brand, signed on January 31, 2004, with Formula Sport Group S.r.l., at the time not in liquidation. The agreement permitted the final settlement of all claims with the Receiver, concerning all relations between the BasicNet Group and the company Formula Sport Group S.r.l. The agreement reached with the Receiver, which prejudiced the defense and appeals made by BasicNet, allowed the Group to avoid unforeseeable risks, guaranteeing the stability of the Trademarks portfolio.

The remainder of the increases in “concession, trademarks and similar rights” is due to costs incurred for the registration of trademarks in new countries, for renewals and extensions and for the purchase of license software.

The historic brands of the Group (Kappa, Robe di Kappa) were purchased by the subsidiary Basic Trademark S.A. from the bankruptcy of the company MCT S.p.A. and have a book value of Euro 4 million at December 31, 2013. The brand Superga, owned by the subsidiary Superga Trademark S.A., has a book value of Euro 20.9 million at December 31, 2013; the brand K-Way, owned by BasicNet S.p.A., has a book value of Euro 8 million at December 31, 2013. These brands, in view of the strategic positioning reached, where there is currently no predictable time frame for the generation of future cash flow streams, are considered intangible asset with indefinite useful life.

The impairment test on the book value was carried out in line with previous years, discounting the royalty net cash flows estimated from the brands in the period 2014-2018. For the years beyond the fifth year a terminal value was calculated on the net royalty cash flow of the fifth year, with a growth rate of 1.5%. These net cash flows were discounted at the weighted average cost of capital (WACC) equal to 7.25% (7.2% in 2012), determined with reference to the following parameters, taken from the principal financial information websites:


EXPLANATORY NOTES

72

Sector Beta: the parameter, indicator of the sector risk, amounts to 1.16 (1.09 in 2012).

Market Risk Premium (MRP): amounts to 5%, unchanged compared to the previous year, and represents the difference between the return on the investments without risk and the return of the investments with risk.

Risk Free Rate (RFR): amounts to 4.27% (4.5% in 2012), in line with the return on ten-year State bonds.

Cost of debt: amounts to 4.2%, unchanged on the previous year.

Debt (40%)/equity (60%) ratio, unchanged compared to the previous year.

Following the impairment test no write-down is required of the book value of the trademarks.

Finally, as in previous years the results of the tests were compared with the valuations made by an independent advisor, which continue to illustrate values largely above the book values.

The account “software programmes” increased by approx. Euro 1 million for investments and decreased by Euro 0.9 million for amortisation in the year.

The account “other intangible assets” principally includes improvements related to the franchising project and recorded investments of Euro 0.5 million and amortisation in the year of Euro 0.4 million. The write-downs, amounting to Euro 1.6 million, refer to the net book value of the improvements at the stores to be closed (Note 16).

22. GOODWILL


Goodwill 10,675 12,146 (1,471)

Total goodwill 10,675 12,146 (1,471)

The account “goodwill” includes the goodwill arising on the business combination with the Spanish licensee (Euro 6.7 million) and the French licensee (Euro 1.2 million), in addition to goodwill paid for the acquisition of retail outlets, known as key money (Euro 2.8 million).

The change in the year in the account “goodwill” is due for Euro 1.7 million to the write-down recorded at June 30, 2013 of the book value of the key money relating to the stores to be sold (Note 16) and to the acquisitions in the year of Euro 0.3 million.

The Group verifies the recovery of the goodwill at least on an annual basis or more frequently when there is an indication of a loss in value. For the purposes of the impairment test the goodwill is allocated to the lowest cash-generating unit.

The impairment test on the goodwill arising from the business combination of the Spanish and French licensees was undertaken utilising the Discounted Cash Flow model, as described below.

The net cash flow from the lowest cash generating unit was discounted at the average weighted costs (WACC) equal to 7.25% (Note 21).

The net debt is deducted from the discounted cash flow, where present, as well as the value of the net assets of the lowest cash generating unit, excluding goodwill. The value is compared with the book value of the goodwill.


EXPLANATORY NOTES

73

The impairment test at December 31, 2013 did not indicate any loss in value.

Relating to the key money, the impairment test was undertaken comparing their book value, corresponding to the price paid on acquisition by the Group, with the higher between the value in use, calculated discounting the cash flows from the stores to the WACC (Note 20), and the market values from independent reports undertaken by industry experts.

The impairment test at December 31, 2013 did not result in further write-downs than those identified at June 30, 2013, amounting to Euro 1.7 million, relating to the stores to be closed.

23. PROPERTY, PLANT AND EQUIPMENT


Property 23,572 24,285 (713) Furniture and other assets 5,261 5,023 238 Plant and machinery 473 581 (108) EDP 2,186 2,452 (266) Industrial and commercial equipment 196 144 52

Total property, plant and equipment 31,688 32,485 (797)

The changes in the historical cost of property, plant and equipment were as follows:

Property

Furniture and other

assets

Plant and machinery

EDP

Industrial and commercial equipment

Total


34,254

10,084

724

9,767

701

55,530

Additions 18 1,564 380 1,198 23 3,183

Disposals and other changes - (12) - (10) - (22)


34,272

11,636

1,104

10,955

724

58,691

Additions 200 1,361 113 833 109 2,616

Disposals and other changes - (269) (93) (83) - (445)


34,472

12,728

1,124

11,705

833

60,862


EXPLANATORY NOTES

74

The changes in the relative accumulated depreciation provisions were as follows:

Property

Furniture and other

assets

Plant and machinery

EDP


Total

Acc. Depr. at 1.1.2012

(9,077)

(5,661)

(390)

(7,514)

(523)

(23,165)

Depreciation (910) (989) (133) (992) (57) (3,081)

Disposals and other changes - 37 - 3 - 40

Acc. Depr. at 31.12.2012

(9,987)

(6,613)

(523)

(8,503)

(580)

(26,206)

Depreciation (913) (985) (161) (1,034) (57) (3,150)

Disposals and other changes - 131 33 18 - 182

Acc. Depr. at 31.12.2013

(10,900)

(7,467)

(651)

(9,519)

(637)

(29,174)

The net book value of property, plant and equipment was as follow:

Property

Furniture and other

assets

Plant and machinery

EDP



25,177

4,423

334

2,253

178

32,365

Additions 18 1,589 380 1,191 23 3,201

Depreciation (910) (989) (133) (992) (57) (3,081)

Disposals and other changes - - - - - -

Closing net book value at December 31, 2012

24,285

5,023

581

2,452

144

32,485

Additions 200 1,361 113 833 109 2,616

Depreciation (913) (985) (161) (1,034) (57) (3,150)

Disposals and other changes - (138) (60) (65) - (263)

Closing net book value at December 31, 2013

23,572

5,261

473

2,186

196

31,688

The “property” includes the value of the buildings at Strada della Cebrosa 106, Turin, headquarters of BasicItalia S.p.A. and at Largo Maurizio Vitale 1, Turin, headquarters of the Parent Company. The increase in the account property is due to improvements undertaken during the year.

Total gross investments in the year amounted to Euro 2.6 million principally relating to the acquisition of furniture and EDP for the opening of new stores.


EXPLANATORY NOTES

75

24. EQUITY INVESTMENTS AND OTHER FINANCIAL ASSETS


Equity investments in: - Subsidiaries - 10 (10) - Other companies 1 9 (8) Total equity investments 1 19 (18) Receivables: - Other receivables Guarantee deposits 385 632 (247) Total financial receivables 385 632 (247)

Total equity investments and other financial assets

386 651 (265)

The value of the “investments in subsidiaries” at December 31, 2012 corresponds to the carrying value of the investment in the company Spaccio S.r.l. (Euro 10 thousand), liquidated at the end of 2013. The investments in “other companies” correspond to the minimum holdings in consortium shopping centres in which the Groups’ stores are located.

“Other receivables” principally refer to deposits on real estate property.

25. DEFERRED TAX ASSETS

The “deferred tax assets” are reported net of deferred tax liabilities:


Deferred tax assets 767 663 104

Total deferred tax assets 767 663 104

The net amount of Euro 767 thousand represents the balance between the deferred tax assets and liabilities as illustrated in the table.

Deferred tax assets principally relate to non-deductible doubtful debt provisions (approx. Euro 1.5 million), non-deductible inventory obsolescence provision (approx. Euro 0.7 million), provisions generated from the temporary differences arising from the accounting of the IFRS adjustments (approx. Euro 0.6 million), non-deductible depreciation/amortisation and write-downs (Euro 0.9 million) and non-deductible interest (Euro 0.5 million), in addition to other minor amounts. Deferred tax assets were recorded, considering recovery probable on the basis of future earnings expectations, also in view of their possible utilisation in consideration of national tax consolidation agreements between the following companies of the Group, Italian or with administrative office in Italy: BasicNet S.p.A., BasicItalia S.p.A., Basic Village S.p.A., RdK0 S.r.l., BasicOutlet S.r.l., BasicCRS S.r.l., Jesus Jeans S.r.l., Basic Trademark S.A. and Superga Trademark S.A.

Deferred tax liabilities refer to the tax effects deriving from the application of the IFRS international accounting standards, with particular reference to the accounting of goodwill amortisation not tax deductible (Euro 0.8 million), different treatment of depreciation calculated for statutory and fiscal purposes on the land on which the owned buildings are located of the subsidiaries Basic Village S.p.A. and BasicItalia S.p.A. (Euro 1.8 million), in addition to Euro 1 million relating to the tax amortisation of the trademarks, in addition to other minor amounts.


EXPLANATORY NOTES

76

The derivatives defined as cash flow hedges and valued at fair value result in the relative tax being recorded directly in the “comprehensive income statement” and not in the “profit and loss account”. As described in the previous paragraph the value is Euro 0.6 million.

The same treatment is adopted for the tax effect relating to the actuarial gain/losses, recorded since January 1, 2013, in accordance with IAS 19 Revised.

The deferred tax assets and liabilities recognised and their impact are reported in the table below:


Temporary difference

Rate %

Tax effect

Temporary difference

Rate %

Tax effect

Changes 2013/2012

Deferred tax asset:

- Sales representatives expenses - 31.40 - - 31.40 - - - Excess doubtful debt provision not deductible

(5,469)

27.50

(1,504)

(5,124)

27.50

(1,409)

(95)

- Inventory obsolescence provision (2,363) 31.40 (678) (1,371) 31.40 (405) (273) - Unrealised exchange losses (128) 27.50 (35) (37) 27.50 (10) (25) - ROL surplus (1,769) 27.50 (486) (3,361) 27.50 (924) 438 - Depr./Amort. not deductible (1,981) 31.40 (622) (1,112) 31.40 (349) (273) - Other charges (1,753) 31.40 (551) (28) 31.40 (9) (542)

- Effect IAS 18 – revenue franchising stores

-

31.40

-

(1,622)

31.40

(509)

509

- Effect IAS 19 – Employee Benefits

-

31.40 -

(23)

31.40

(6)

6

- Effect IAS 39 – financial instruments

(2,037)

27.50 (560)

(2,764)

27.50

(760)

200

Total (15,500) (4,436) (15,442) (4,381) (55) Deferred tax liabilities: - Unrealised exchange gains 56 27.50 16 14 27.50 4 12 - Tax deductible on a cash basis - 31.40 - 2 31.40 1 (1) - Depr./Amort. tax basis 4,166 31.40 1,075 4,417 31.40 1,387 (312)

- Effect IAS 38 – plant costs 10 31.40 3 4 31.40 2 1 - Effect IAS 17 – finance leases and tax diff. on buildings

5,711

31.40

1,793

6,123

31.40

1,922

(129)

- Effect IFRS 3 – goodwill amortization

2,964

26.40 782

2,790

26.20

731

54

Total 12,907 3,669 13,350 4,047 (378)

Net deferred tax liability (asset) (2,593) (767) (2,092) (334) (433)

Deferred tax asset on losses - 27,50 - (1,196) 27,50 (329) 329

Net deferred tax liability/(asset) (767) (663) (104)


EXPLANATORY NOTES

77

26. NET INVENTORIES


Finished products and goods for resale 50,632 53,509 (2,877) Inventory obsolescence provision (2,363) (1,371) (992)

Total net inventories 48,269 52,138 (3,869)

Finished inventories include goods in transit at the balance sheet date which at December 31, 2013 amount to approx. Euro 4.5 million compared to Euro 3.8 million at December 31, 2012, goods held at Group brand stores for Euro 13.6 million, compared to Euro 15.5 million at December 31, 2012 and goods to be shipped against orders, to be delivered at the beginning of the following year, for Euro 9.3 million compared to Euro 15.5 million at December 31, 2012.

Finished product inventories decreased by approx. Euro 3.8 million (-7.4%) due to the destocking of goods in consignment during the year.

Inventories are valued under the weighted average cost method and net of the obsolescence provision considered reasonable for a prudent valuation of inventories, which recorded the following changes during the year:

2013 2012

Inventory obsolescence provision at 1.1 1,371 1,466 Provisions in the year 1,370 450 Utilisations (378) (545)

Inventory obsolescence provision at 31.12 2,363 1,371

27. TRADE RECEIVABLES

December 31,

2013

December 31,

2012

Changes

Gross value 50,092 50,284 (192) Doubtful debt provision (6,406) (5,587) (819)

Total trade receivables 43,686 44,697 (1,011)

“Trade receivables” refer for Euro 32.9 million to goods sold by proprietary licensees (Euro 35.1 million at December 31, 2012) and for which a doubtful debt provision was recorded of Euro 5.1 million (Euro 5 million in 2012), for Euro 17.6 million to royalties and sourcing commissions (Euro 15.3 million at December 31, 2012) against which a doubtful debt provisions was recorded of Euro 1.3 million (Euro 1.1 million at December 31, 2012) and Euro 0.1 million other receivables (Euro 0.4 million at December 31, 2012). The receivables are recorded at their realisable value through a doubtful debt provision based on estimated losses on disputes and/or overdue receivables as well as a general provision.


EXPLANATORY NOTES

78

The movements during the year were as follows:

2013 2012

Doubtful debt provision at 1.1 5,587 5,723

Provisions in the year 2,963 2,400 Utilisations (2,144) (2,536)

Doubtful debt provision at 31.12 6,406 5,587

All amounts are due within 12 months.

The aging of the receivables is as follows:


Receivables not overdue and non written down

25,441 26,244

Receivables written down, net of provision 7,085 7,333

Overdue and non written down 11,160 11,120

Total 43,686 44,697

The amount of receivables overdue and not written down include one debtor overdue between 0-6 months. The Group continues to maintain a close control on receivables. This management control permitted the reduction in the investment in working capital despite the difficulties arising in the year in terms of liquidity within the economy, especially on the domestic market. The utilisations of the provision are related to the write off of long outstanding amounts and are made when the statutory documentation of the loss has been received. The provisions are made on the basis of the review of individual positions and also include a general provision on historical experience and is considered adequate against the estimated risk of non-recovery.

28. OTHER CURRENT ASSETS


Tax receivables 10,100 9,437 663 Other receivables 2,648 2,803 (155)

Total other current assets 12,748 12,240 508

The “tax receivables” principally include VAT receivables of Euro 4.3 million, withholding taxes on royalties of Euro 5.5 million, and corporate income taxes paid on account of Euro 0.2 million.

The account “other receivables” includes payments to suppliers (Euro 1.1 million), the premium paid to the insurance company against the Directors Termination Indemnities for Euro 0.6 million, recovery of regional tax of Euro 0.5 million and other minor amounts.


EXPLANATORY NOTES

79

29. PREPAYMENTS


Expenses pertaining to future Collections 3,931 4,041 (110) Sponsorship and media 2,080 2,998 (918) Other 892 1,062 170

Total prepaid expenses 6,903 8,101 (1.198)

The “expenses pertaining to future Collections” include the creative personnel costs, samples, merchandising costs and sales catalogues, relating to new Collections to be brought to the market, as well as presentations costs for the relative sales meetings.

The “sponsorship costs” relate to the annual amount contractually defined by the parties, which is partially invoiced in advance during the sports season, compared to the timing of the services.

The “other prepayments” include various costs for samples, services, utilities, insurance and other minor amounts incurred by the companies of the Group.

30. CASH AND CASH EQUIVALENTS


Bank and post office deposits 6,429 2,120 4,309

Cash in hand and similar 60 159 (99)

Total cash and cash equivalents 6,489 2,279 4,210

“Bank deposits” refer to temporary current account balances principally due to receipts from clients. In particular the balances are held at the companies BasicNet S.p.A. (Euro 3.1 million), BasicItalia S.p.A. (Euro 1.6 million), BasicOutlet S.r.l. (Euro 0.9 million) and the foreign Group companies (Euro 0.8 million).

Against the agreement signed with Intesa Sanpaolo S.p.A. (described in Note 42), Euro 376 thousand is included in bank deposits and restricted as guarantee on loans provided by the bank to third parties, owners of the Group’s franchising stores.


EXPLANATORY NOTES

80

SHAREHOLDERS’ EQUITY & LIABILITIES

31. SHAREHOLDERS’ EQUITY


Share capital 31,717 31,717 -

Treasury shares (5,765) (5,457) (308)

Other reserves 37,162 53,738 (16,576)

Net Profit/(loss) 4,501 (17,166) 21,667

Minority interests - - -

Total Net Equity 67,615 62,832 4,783

The “share capital” of the Parent Company, amounting to Euro 31,716,673.04, is divided into 60,993,602 ordinary shares of Euro 0.52 each, fully paid-in.

During the year 193,000 treasury shares were acquired in accordance with Shareholders’ Meetings resolutions, as illustrated in the Directors’ Report which totals 3,266,681 shares held at the end of the previous year and 3,459,681 held at December 31, 2013 (5.67% of the Share Capital).

The reconciliation at December 31, 2013 between the net equity and net result of the Parent Company and the net equity and consolidated net result of the Group is reported in the Directors’ Report.

The other gains and losses recorded directly in equity in accordance with IAS 1 – Presentation of financial statements are reported below.


Effective part of the Gains/(losses) on cash flow instruments generated in the period (currency hedges) (101) (507) 406

Effective part of the Gains/(losses) on cash flow instruments generated in the period (interest rate hedges)

828 (120) 948

Effective part of the Gains/losses on cash flow hedge instruments

727 (627) 1,354

Effective part of the Gains/losses for re-measurement of defined benefit plans (IAS 19) 97 (233) 330

Gains/(losses) from translation of accounts of foreign subsidiaries

(8) (137) 129

Tax effect relating to the Other items of the comprehensive income statement (226) 236 (462)

Total other gains/(losses), net of tax effect 590 (761) 1,351


EXPLANATORY NOTES

81

The tax effect relating to Other gains/(losses) is as follows:


Gross value

Tax Charge/ Benefit

Net

value

Gross value

Tax Charge/ Benefit

Net

value

Effective part of Gains/losses on cash flow hedge instruments 727 (200) 527 (627) 172 (455)

Gains/losses for re-measurement of defined benefit plans (IAS 19) 97 (26) 71 (233) 64 (169)

Gains/(losses) from translation of accounts of foreign subsidiaries (8) - (8) (137) - (137)

Total other gains/(losses), net of tax effect 816 (226) (590) (997) 236 (761)

32. PROVISIONS FOR RISKS AND CHARGES


Provisions for risks and charges 4,413 4,439 (26)

Total provisions for risks and charges 4,413 4,439 (26)

The most significant amount of the provision for risks and charges relates to the non-recurring fiscal charges, described in the proceeding Note 19, in addition to the Agents Termination Indemnity Provision (FIRR) in BasicItalia S.p.A.. The reduction is due to the utilisation of the FIRR during the year.

33. LOANS


Medium/long term loans:

- due within 5 year 13,833 12,191 1.642- due beyond 5 year 5,629 6,432 (803) Total medium/long loans 19,462 18,623 839 Leasing payables 2,347 2,216 131 Total leasing payables (maturity within 5 years) 2,347 2,216 131

Total loans 21,809 20,839 970


EXPLANATORY NOTES

82

The “medium/long-term loans” are comprised for Euro 1.8 million of the residual value of the syndicated Superga loan (“Superga Loan”) with Lead Bank Unicredit Banca d’Impresa S.p.A., for Euro 9.3 million of the residual loan provided by the Capitalia Group (now Unicredit Group) for the purchase of the building “Basic Village” located at Largo Maurizio Vitale, 1, Turin (“Basic Village Loan”), for Euro 3.5 million of the residual loan from Mediocredito Italiano S.p.A. (Banca Intesa Sanpaolo S.p.A. Group) for the purchase of the building of BasicItalia S.p.A. located at Strada Cebrosa, 106 (“BasicItalia Loan”) and for Euro 4.8 million of the residual loan from Unione Banche Italiane ScpA in June 2013 (“UBI Banca Loan”).

The acquisition of the Superga brand by the Group was financed through a syndicated loan of Euro 19 million, granted in July 2007 for 8 years and with maturity on July 16, 2015. Guarantees were provided on these loans including a pledge on 100% of the share capital of Superga Trademark S.A.

The contractual conditions provide for the following financial covenants relating to the consolidated financial statements of the BasicNet Group, which have all been complied with, as follows:

Financial Condition Covenant

at December 31, 2013

Actual at

December 31, 2013

Covenant Subsequent

Years

IFN/EBITDA ≤ 4.5 2.06 4.5

IFN/PN ≤ 1.2 0.79 1.2

Net Financial Charges/EBITDA ≤ 0.40 0.15 0.40

Net equity ≥ € 49 million € 67.6 million € 49 million

in addition to the following commitments, against which it is necessary to request prior approval from the lending banks:

the commitment not to distribute profits where such distribution would result in a non-compliance of the financial ratios;

the commitment not to acquire treasury shares, except in the case of a specific waiver authorised, and not to undertake reductions in share capital;

other commitments relating to extraordinary operations or disposal of assets or acquiring further forms of debt not related to the ordinary commercial activities.

In relation to further clauses related to some conditions on the ownership structure in the share capital of BasicWorld S.r.l. and BasicNet S.p.A., reference should be made to the Corporate Governance Report (chapter 2 letter h).

The commitments and conditions outlined above have all been complied with at the date of the present Financial Statements.

The medium/long-term loan granted by the Unicredit Group was for the acquisition of the building “Basic Village” at Largo M. Vitale 1, Turin. The loan was granted in September 2007 for Euro 18 million at a variable rate converted into a fixed rate (Note 41). Against this loan there is a mortgage on the property and sureties of the parent company BasicNet S.p.A. and maturity in September 2022.


EXPLANATORY NOTES

83

The medium/long-term loan granted by the Banca Intesa Sanpaolo S.p.A. Group was for the purchase of the building “BasicItalia” at Strada Cebrosa 106, Turin. The loan was granted on October 2008 for Euro 6 million at a variable interest rate at Euribor quarterly +230 basis point, with repayment of the capital in 59 quarterly constant instalments and maturity at September 2023. The loan is guaranteed by a mortgage on the property and by a surety of the parent company BasicNet S.p.A..

The UBI Banca loan was granted at the end of June 2013 by Unione Banche Italiane ScpA for an amount of Euro 7.5 million at a variable quarterly Euribor plus 400 basis points with repayment of the capital in 14 quarterly instalments and maturity at December 2016.

The contractual conditions provide for compliance with financial covenants annually, the first of which on December 31, 2013, fully complied with, as follows:

Financial Condition

Covenant at

December 31, 2013

Actual at

December 31, 2013

Covenant Subsequent

Years

NFP/EBITDA ≤ 4.0 2.06 3.5

NFP/NE ≤ 1.0 0.79 1.0

The contractual conditions also provide for disclosure and general obligations for the loans, in addition to compliance with the current shareholder structure with the bank having the right to require repayment in the case where the current shareholder holds directly or indirectly less than 30% of the share capital of BasicNet S.p.A.

The changes in the medium/long-term loans during the year are shown below:

31/12/2012

Repayments

New loans

31/12/2013

Short-term

portion

Medium/long term

portion

Superga loan 6,531 (2,375) - 4,156 2,375 1,781

Basic Village loan 11,700 (1,200) - 10,500 1,200 9,300

BasicItalia loan 4,373 (406) - 3,967 407 3,560

UBI Banca loan - (536) 7,500 6,964 2,143 4,821

Balance 22,604 (4,517) 7,500 25,587 6,125 19,462

At December 31, 2013 the credit lines available from the banking system (bank overdrafts, commercial advances, medium/long-term loans, import financing, leasing and letters of credit), amounted to Euro 119.3 million, broken down as follows:

(in Euro millions) December 31, 2013 December 31, 2012

Cash facility 77.6 94.0 Factoring 1.5 5.5 Letters of credit and swaps 9.5 26.0 Medium/long term loans 25.6 23.0 Property leases 5.1 5.2

Total 119.3 153.7


EXPLANATORY NOTES

84

The overall reduction in the credit lines is related in general to the reduction in the commercial credit lines for temporary positions or unutilised. With reference to the reduction of the credit lines it is highlighted that the reductions related to the maturity of the sureties issued in favour of third parties for contractual commitments of the Group and currency management lines, now matured.

The average interest paid for the BasicNet Group in the year is reported in Note 36.

34. EMPLOYEE AND DIRECTOR BENEFITS

The account includes the post-employment benefits for employees of Euro 2.5 million and the termination indemnities of Directors of Euro 0.4 million, as described previously.

The changes in the year of the post-employment benefit liability were as follows:


Defined benefit plans

Defined contribution plans

Total


Defined contribution plans

Total

Change in the balance sheet: Net liabilities recognised at the beginning of the year

2,673 - 2,673 2,377 - 2,377

Interest 66 - 66 81 - 81 Pension cost, net of withholdings 122 800 922 113 784 897 Benefits paid (279) (279) (130) - (130) Payments to the INPS treasury fund - (657) (657) - (628) (628) Payments to other complementary pension fund - (143) (143) - (156) (156) - Actuarial gains/(losses) (97) - (97) 233 - 233

Net liabilities recognised in the accounts 2,485 - 2,485 2,674 - 2,674

Change in the income statement: Interest 66 - 66 81 - 81 Pension Cost 127 800 927 122 784 906

Total charges/(income) for post-employment benefits 193 800 993 203 784 987

The account “defined benefit plans” includes the present value of the liabilities in the Italian companies of the Group towards employees in accordance with Article 2120 of the Civil Code. Based on the regulatory changes in 2007, the sums matured prior to January 1, 2007 to employees are recognised as defined benefit plans in accordance with IAS 19 – Employee benefits; those matured subsequent to this date are on the other hand recognised as defined contribution plans in accordance with the same standard.

Within the Group there are no other defined benefit plans.

The actuarial valuation of the Post-Employment Benefit is prepared based on the “matured benefits” method through the Projected Unit Credit Method in accordance with IAS 19. Under this method the valuation is based on the average present value of the pension obligations matured based on the employment service up to the time of the valuation, without projecting the remuneration of the employee in accordance with the regulatory modifications introduced by the Pension Reform.


EXPLANATORY NOTES

85

The actuarial model for the measurement of the post-employment benefit is based on various assumptions of a demographic and financial nature. The principal assumptions of the model concerning the actuarial valuations relating to personnel costs are:


discount rate 2.77% 2.40% inflation rate 2.00% 2.00% annual increase in post-employment benefit 3.00% 3.00% annual increase in salaries 1-3% 1-3%

The change in the discount rate reflects the decrease in the yields of the “corporate bonds” of the basket utilised (Iboxx Eurozone Corporate) at the balance sheet date.

35. OTHER NON-CURRENT LIABILITIES


Guarantee deposits 670 623 47

Total other non-current liabilities 670 623 47

The “guarantee deposits” include the guarantees received from licensees, to cover the minimum royalties guaranteed contractually.

36. BANK PAYABLES


Bank payables due within one year:

- short-term portion of medium/long-term loans 6,125 3,982 2,143

- bank overdrafts and bills 13,887 23,918 (10,031)

- import advances 17,791 14,732 3,059

Total bank payables 37,803 42,632 (4,829)

The “bank payables” include the short-term portion of the medium/long-term loans from Credit institutions and described in Note 33, which at December 31, 2013 amount to approx. Euro 6.1 million and short-term advances received by the Italian companies of the Group utilised to finance working capital.

The changes in the financial position are commented upon in the Directors’ Report. Interest due matured at the end of the year on short and medium/long-term loans is reported in the account bank payables.

Cash advances refer to temporary utilisation by the Parent Company BasicNet S.p.A., for Group treasury needs.


EXPLANATORY NOTES

86

The financial debt by interest rate at December 31, 2013 is as follows:

Interest Rate Below 3% Between 3% and

5% Between 5% and

6.01% Total

Cash advances - - 2,964 2,964 Bill advances 7,448 3,475 - 10,923 Import advances 2,080 14,180 1,531 17,791 M/L loans 3,966 6,965 14,656 25,587 Leasing - 2,347 - 2,347

Total 13,494 26,967 19,151 59,612

37. TRADE PAYABLES

The “trade payables” are payable in the short-term and decreased by approx. Euro 4 million compared to December 31, 2012, following the commercial activity of the Group in the period. At the date of the present report there are no initiatives for the suspension of supplies, payment injunctions or executive actions by creditors against BasicNet S.p.A. or other companies of the Group.

Trade payables are normally settled between 30 and 120 days. The book value of trade payables equates the relative fair value.

38. TAX PAYABLES

The breakdown of this account is shown in the following table:


Tax payables:

Income taxes 2,314 695 1,619 Withholding taxes 95 45 50 Employee contributions 502 496 6 Non-recurring tax charge 8,310 13,290 (4,980) Group VAT 8,840 5,682 3,158

Total tax payables 20,061 20,208 (147)

The tax payables for non-recurring charges, which were described in detail in Note 19, are payable in 12 quarterly instalments, of which Euro 4.5 million due within the year 2014 and Euro 3.8 million within two years.

39. OTHER CURRENT LIABILITIES


Accrued expenses 669 687 (18) Other payables 7,310 4,149 3,161

Total other current liabilities 7,979 4,836 3,143


EXPLANATORY NOTES

87

The account “accrued expense” principally includes deferred employee remuneration.

The “other payables” at December 31, 2013 principally include employee remuneration and expenses (Euro 2.4 million), payable in the subsequent month, related social security charges (Euro 0.9 million), other related liabilities (Euro 0.8 million), royalty payment on accounts from licensees (Euro 1.3 million) and other minor amounts Euro (1.6 million).

40. DEFERRED INCOME


Royalties 414 1,344 (930)

Sponsorship costs 1,497 2,085 (588)

Other deferred income 35 18 17

Total deferred income 1,946 3,447 (1,501)

The “sponsorship deferred income” relates to the invoicing of sponsored merchandise, which contractually partially refers to the period after the reporting date, with corresponding prepayments recorded under assets for sponsoring costs. The decrease is related to the sponsorship of A.S. Roma, against an advance unilateral resolution of the contract at the end of November 2012, with supply of the merchandise made in advance.

41. FINANCIAL INSTRUMENTS - DERIVATIVES


Financial instruments - derivatives 2,037 2,764 (727)

Total financial instruments - derivatives 2,037 2,764 (727)

The account includes the adjustments to market value of the interest rate hedging operations on the Superga loan and on the Basic Village loan (Note 33), signed with leading financial counterparties, which converted the variable interest rates into fixed interest rates, respectively at 6.36% and 6.04% (cash flow hedge). The adjustment was Euro 727 thousand, based on the movements in the money markets (Euribor).

A negative equity reserve was recorded of Euro 1.5 million, net of the tax effect.

In the case of the Interest Rate Swap (IRS) agreed by the Group, the specific hedge of the variable cash flow realised at market conditions, through the signing of the fix/flo IRS perfectly hedges the item to which the original cash flows stem, as in this case, and continues to be effective.


EXPLANATORY NOTES

88

42. GUARANTEES GIVEN

With reference to the guarantees and commitments of the Group with third parties reference should be made to Note 33.

In February 2010 the Intesa Sanpaolo S.p.A. Group and BasicItalia S.p.A. signed an agreement which would permit important access to subsidised finance for the start-up of franchising stores of the Group, against which a portion of the loan is guaranteed and the purchase of assets in leasing in the case of non-compliant of the store owner. For its part, BasicItalia S.p.A. has the contractual right to sub-enter into the management of the stores, in the event that the store owner does not comply with the loan and leasing repayments. At December 31, 2013 the deposit amounted to Euro 376 thousand and leasing guarantees amount to Euro 2.3 million.

In accordance with that outlined above guarantees were granted of Euro 2.2 million by credit institutions in favour of the lessees of the stores of BasicItalia S.p.A., RdK0 S.r.l. and BasicOutlet S.r.l. directly undertaking retail sales of the Group products.

Further commitments were undertaken by the subsidiary BasicItalia S.p.A. relating to the opening of import credit documentation for goods, through some Credit Institutions, totalling Euro 14.8 million (Euro 16.2 million at December 31, 2012).

43. CLASSIFICATION OF THE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The principal risks and uncertainties of the Group activities are described in the Directors’ Report.

The financial instruments of the BasicNet Group include:

cash and cash equivalents and bank overdrafts;

medium/long-term loans and lease financing;

derivative financial instruments;

trade payables and receivables. It is recalled that the Group only subscribes to cash flow hedges, to hedge against interest and currency risks. In accordance with the requirements of IFRS 7 in relation to financial risks, the types of financial instruments present in the financial statements, with indication of the valuation criteria applied, are reported below:

Financial instruments at

fair value recorded through:

Financial instruments at amortised cost

Non-listed investments

valued at cost

Book value at

31.12.2013

P&L Equity Assets: Equity investments and other financial assets

- - - 386 386

Trade receivables - - 43,686 - 43,686 Other current assets - - 12,748 - 12,748 Financial instruments (currency risk) - - - - -

Liabilities: Bank payables - - 37,803 - 37,803 Medium/long term loans - - 21,809 - 21,809 Trade payables - - 35,747 - 35,747 Other current liabilities - - 7,979 - 7,979 Financial instruments (interest rate risk) - 2,037 - - 2,037


EXPLANATORY NOTES

89

The financial risk factors, identified by IFRS 7 – Financial instruments: additional disclosures, are described below:

the risk that the fair value or the future cash flows of a financial instrument fluctuate following changes in market prices (“market risk”). The market risk includes the following risks: price, currency and interest:

a. the risk that the fair value or the future cash flows of a financial instrument fluctuate following changes in market prices (other than changes determined from interest rate or currency risk), whether the changes are determined by specific factors related to the financial instrument or its issuer, or whether it is due to factors which influence all similar financial instruments traded on the market (“price risk”);

b. the risk that the fair value or the future cash flows of a financial instrument fluctuate following changes in currency prices (“currency risk”);

c. the risk that the fair value or the future cash flows of a financial instrument fluctuate following changes in market interest rates (“interest rate risk”);

the risk that one of the parties that signs a contract of a financial nature does not comply with an

obligation (“credit risk”); the risk that an entity has difficulty in complying with the obligations associated with the financial

liabilities (“liquidity risk”);

the risk that the loans within the companies of the Group contain clauses which allow the counterparties to request the creditor on the occurrence of certain events or circumstances the immediate repayment of the sums granted and not yet due, generating a liquidity risk (“default risk”).

Price risk The Group is exposed to the risk of fluctuations of commodity prices relating to raw materials (wool, cotton, rubber, synthetic fibre etc.) incorporated in the finished products which BasicItalia S.p.A. acquires on international markets, as well as fluctuations in the cost of petrol which influences transport costs. The Group does not hedge these risks as not directly dealing with raw materials but only finished products and is exposed for the part of the increase which cannot be transferred to the final consumer if the market and competitive conditions do not permit such. Currency risk The BasicNet Group has subscribed the majority of its financial instruments in Euro which corresponds to its functional and presentation currency. Operating on the international market the group is also exposed to fluctuations in exchange rates, principally the US Dollar against the Euro.

At December 31, 2013, unrealised exchange gains were recorded of Euro 56 thousand, while unrealised exchange losses were recorded of Euro 128 thousand, for a net exchange loss of Euro 71 thousand.

At the reporting date there were 8 hedge operations on US Dollar fluctuations, totalling USD 25 million, at exchange rates of between 1.3480 to 1.3760 US Dollars against the Euro to hedge the net currency position; the relative effects are illustrated in the account “Derivative financial instruments”, in Note 41.

Group Management considers that the management and containment polices of this risk adopted are adequate.


EXPLANATORY NOTES

90

All medium/long-term loans and leasing contracts are in Euro, therefore they are not subject to any currency risk.

Interest rate risk The composition of the gross financial debt between fixed and variable interest rates at December 31, 2013 is shown below:

December 31, 2013 % December 31, 2012 %

Fixed rate 14,820 24.90% 18,380 29 % Variable rate 44,792 75.10% 45,091 71 %

Gross debt 59,612 100.00% 63,471 100%

The interest rate fluctuation risks of some medium/term loans were hedged with conversion of the variable rate into fixed rates, as described in Notes 33 and 41. On the remaining part of the financial debt the Group is exposed to the fluctuation risks. The interest on the short-term credit lines are on an average between 4.43% to 6.01% in accordance with the type of lending, as illustrated in Note 36. Where at December 31, 2013 the interest rate on long/term loans at that date were 100 basis points higher (or lower) compared to the actual rates, there would be a higher financial charges (lower), before the tax effect, respectively of Euro +169 thousand and Euro 169 thousand. Credit risk The doubtful debt provision (Note 27) which includes provisions against specific credit positions and a general provision on an historical analysis of receivables, represents approx. 12.8% of trade receivables at December 31, 2013, against average losses in the last three years amounting to 2.4% of receivables and therefore an annual average value of 3.3%.

Liquidity risk The liquidity risk is:

mitigated in the short-term period by the significant generation of cash realised by the “licenses and trademarks” segment, by the significant positive net working capital, and by the overall credit lines provided by the banking system (Note 33);

worsened in recent years by losses in the Italian licensor BasicItalia S.p.A. and its subsidiaries, due to the consumer crisis in the Italian market, which the Company has confronted with the operations described in the Directors’ Report, with positive results already seen at the end of 2013 and more significantly at the beginning of 2014;

worsened by the financial effects deriving from the settlement with the Tax Administration, which results in a financial payment of Euro 8.3 million over the next three years, having already paid Euro 5 million in 2013. The possibility to make the payments in quarterly instalments over the next three years permits compliance with the scheduled payments through the generation of cash deriving from operating activities, in particular the management of commercial licenses (royalties) and production (sourcing commission).


EXPLANATORY NOTES

91

The table below illustrates the cash flow timing of payments on medium/long-term debt.

Book value

Future interest income/ (expense)

Contractual cash flows

Within 1 year

From 1 to 5

years

Over 5 years

Superga loan 4,156 214 4,370 2,554 1,816 - UBI Banca loan 6,964 449 7,413 2,384 5,029 - BasicVillage loan 10,500 2,858 13,358 1,811 7,955 3,592 BasicItalia loan 3,559 513 4,072 505 2,369 1,198 Lease payables 2,169 172 2,341 1,021 1,320 -

Total financial liabilities 27,348 4,206 31,554 8,275 18,489 4,790

Default risk and debt covenants

The covenants are described in detail in Note 33 and at December 31, 2013 were all complied with.

44. INTERCOMPANY TRANSACTIONS AND TRANSACTIONS WITH RELATED COMPANIES

The transactions between the Parent Company and its subsidiaries and between the subsidiaries were within the normal operating activities of the Group and were concluded at normal market conditions. The balance sheet and income statement effects of the transactions are eliminated in the consolidation process. Based on the information received from the companies of the Group there were no atypical or unusual operations.

BasicNet S.p.A., and, as consolidating companies, BasicItalia S.p.A., RdK0 S.r.l., BasicOutlet S.r.l., BasicCRS S.r.l., Basic Village S.p.A. and Jesus Jeans S.r.l. have adhered to the national fiscal regime as per Article 177/129 of the CFA.

The transactions with related parties for the year ended December 31, 2013 are reported below:

Investments Trade

receivables Trade

payables Other income

Costs

Interests in joint ventures: - AnziBesson Trademark S.r.l. - 10 5 5 - - Fashion S.p.A. - 40 38 - -

Remuneration of Boards and Senior Executives

-

-

-

-

3,238

The remuneration concerns emoluments and all other payments, pension-related or social security deriving from the role of Director or Statutory Auditor in BasicNet S.p.A. and the other companies within the consolidation scope. In relation to the other related parties, we highlight the legal consulting activities undertaken by the Studio Professionale Pavesio e Associati, of the Director Carlo Pavesio and the consultancy undertaken by Pantarei S.r.l. in which the Director Alessandro Gabetti Davicini is Sole Director. These transactions, not material compared to the overall values, were at market conditions. The collections owned by BasicNet S.p.A., which are utilised for media events, shows, press gatherings together with the Brands and/or products of the Group, are subject to a renewable put and call agreement with BasicWorld S.r.l, at a price equal to the costs incurred for their acquisition, in addition to interest at Euribor +200 basis points. This agreement was signed based on the eventual interest of BasicNet S.p.A. to sell this equipment to guarantee the complete recovery of the costs incurred, including financial charges, utilising in the meantime the benefits which derive from such communication instruments for their brands and/or products and, by BasicWorld S.r.l., of the purchase, to avoid that such a collection which would be lost.


EXPLANATORY NOTES

92

45. SUBSEQUENT EVENTS

They are described in the Directors’ Report.

46. CONSOB NO. DEM/6064293 OF JULY 28, 2006

In compliance with Communication DEM/6064293 of July 28, 2006 the effects of non-recurring significant operations during the year and their relative impact net of the tax effect are reported below:

(In Euro thousands)

Net Equity Profit/(loss) for the year

Net financial debt Cash flows

Book value 67,615 4,501 (53,124) 11,182

Other income renewal ten-year contract South Korea (6,447) (6,447) (9,160) (9,160)

Non-recurring write-downs 3,262 3,262 - -

Notional value of financial statements

64,430 1,316 (62,284) 2,022

47. CONTINGENT LIABILITIES/ASSETS

The BasicNet Group is involved in some legal disputes of a commercial nature which are not expected to give rise to significant liabilities.

A.S. Roma contract termination

The dispute was taken by BasicItalia S.p.A. against A.S. Roma S.p.A. and Soccer S.a.s. Brand Manager S.r.l. which on November 23, 2012 communicated the unilateral advance resolution of the team sponsorship, agreed with duration until June 30, 2017, for presumed non-compliance and, in particular, defects in the materials supplied. BasicItalia S.p.A., considering the reasons for the resolution unfounded, instigated an ordinary court procedure requesting compensation for significant damage incurred. A.S. Roma S.p.A. and Soccer S.a.s. appealed against the request of BasicItalia S.p.A. and counterclaimed requesting compensation for presumed damage. The procedure is still in the initial phase. Subsequent to the above-mentioned resolution of the contract, A.S. Roma sought payment on the sureties granted by BNL S.p.A. on behalf of BasicItalia S.p.A. for a maximum amount of Euro 5.5 million, which guaranteed commitments undertaken by BasicItalia S.p.A. in accordance with the sponsorship contract. Following the non-payment by BNL S.p.A., A.S. Roma presented an appeal before the Rome Court to obtain judgment against BNL for the payment of the entire amount guaranteed. On the completion of this procedure, in which BasicItalia S.p.A. (together with the parent company BasicNet S.p.A.) was called to provide a guarantee by BNL, the Rome Court with order dated December 7, 2013, rejected all the demands of A.S. Roma considering the enforcement illegal. A.S. Roma did not contest this order and the relative period for appeal has lapsed.


EXPLANATORY NOTES

93

Finally, we report that BasicItalia S.p.A. presented, also to the Rome Court, an injunction decree in order to attain from Soccer S.a.s. di Brand Manager S.r.l. the payment of invoices issued for the supply of technical material delivered during 2013, amounted to approx. Euro 1.6 million. Following the granting of the injunction decree, Soccer S.a.s. di Brand Manager S.r.l. appealed the decision and the relative procedure, which BasicItalia contested.

For the Board of Directors

The Chairman


BasicNet Group – Consolidated Financial Statements as at December 31, 2013 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ATTACHMENTS

94

ATTACHMENT 1

DISCLOSURE PURSUANT TO ARTICLE 149 DUODECIES OF THE CONSOB ISSUER’S REGULATION

Type of service

Service provider

Company

Fees earned 2013

Audit PricewaterhouseCoopers S.p.A. Parent BasicNet S.p.A.

Subsidiaries 91,306

140,721 Certification services PricewaterhouseCoopers S.p.A. - - Other services PricewaterhouseCoopers S.p.A. - 55,000

Total 287,027


ATTACHMENTS

95

ATTACHMENT 2 Page 1 of 2

COMPANIES INCLUDED IN THE CONSOLIDATION UNDER THE LINE-BY-LINE METHOD

Registered office Corporate purpose Share Capital Parent Holding

(%) SUBSIDIARIES

BasicNet S.p.A.

Directly Held subsidiaries

- Basic Properties B.V. Amsterdam (NL) Sub-license concession of patent rights to local licensees.

EURO 18,160 100

- Basic Village S.p.A. - single shareholder company

Turin (Italy) Building mgt. at Largo M. Vitale, 1.

EURO 412,800 100

- BasicItalia S.p.A. - single shareholder company

Turin (Italy) Italian licensor, direct stores of BasicNet Group.

EURO 7,650,000 100

- BasicNet Asia Ltd.

Hong Kong (China) Control activity of the licensees and sourcing centre in Asia.

HKD 10,000 100

- Jesus Jeans S.r.l. - single shareholder company

Turin (Italy) Owner of the Jesus Jeans brand. EURO 10,000 100

Indirectly Held subsidiaries

– through Basic Properties B.V.

- Basic Trademark S.A. Luxembourg Owner of some brands of the BasicNet Group.

EURO 1,250,000 100

- Superga Trademark S.A. Luxembourg Owner of the brand Superga. EURO 500,000 100 (2) - Basic Spain S.L.

Barcelona (Spain)

Sub-license of the brands for Spain, Portugal and Morocco.

EURO 194,621 100

- Basic Properties America, Inc.

Richmond (Virginia – USA)

Sub-license of the brands for the US, Canada and Mexico markets.

USD 8,469,157.77 100

- through BasicItalia S.p.A. - RdK0 S.r.l. - single shareholder company

Turin (Italy) Management of stores.

EURO 10,000 100

- BasicCRS S.r.l. - single shareholder company

Turin (Italy) Management of services related to sales and post-sales of Group brand products.

EURO 10,000 100

- BasicoOutlet S.r.l. - single shareholder company

Turin (Italy) Management of outlets owned by the Group.

EURO 10,000 100

(1) Shares subject to pledges with right of vote at Extraordinary Shareholders’ Meeting to the Lead Bank Unicredit Banca d’Impresa S.p.A. for the

“Syndicated” loan of July 16, 2007 with expiry on July 16, 2015.

BasicNet Group – Consolidated Financial Statements as at December 31, 2013 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ATTACHMENTS

96


COMPANIES INCLUDED IN THE CONSOLIDATION UNDER THE PROPORTIONAL METHOD

Registered office Corporate purpose Share Capital Percentage

holding (%)

- through BasicNet S.p.A. - AnziBesson Trademark S.r.l. Turin (Italy) Owner of the brand AnziBesson in joint-

venture EURO 50,000 50 (3)

- Fashion S.p.A. Turin (Italy) Owner of the brand Sabelt in joint-

venture EURO 240,000 50 (4)

(2) The remaining 50% of the investment is held by Giuliano Besson (3) The remaining 50% of the investment is held by the Marsiaj family


ATTACHMENTS

97

ATTACHMENT 3

INVESTMENTS AT DECEMBER 31, 2013

Registered office Parent Share Capital % Holding and voting

rights

- AnziBesson Trademark S.r.l.

Turin (Italy) BasicNet S.p.A.

EURO 50,000 50

- BasicCRS S.r.l. - con Socio Unico

Turin (Italy) BasicItalia S.p.A.

EURO 10,000 100

- BasicItalia S.p.A. con Socio Unico


EURO 7,650,000 100

- BasicOutlet S.r.l. - con Socio Unico

Turin (Italy) BasicItalia S.p.A. EURO 10,000 100


Hong Kong (China) BasicNet S.p.A. HKD 10,000 100

- Basic Properties B.V.

Amsterdam (NL) BasicNet S.p.A.

EURO 18,160 100



Basic Properties B.V. USD 8,469,157,77 100

- Basic Spain S.L.

Barcelona (Spain) Basic Properties B.V. EURO 194,621 100

- Basic Trademark S.A.

Luxembourg Basic Properties B.V. EURO 1,250,000 100

- Basic Village S.p.A. - con Socio Unico

Turin (Italy) BasicNet S.p.A. EURO 412,800 100

- Fashion S.p.A.


EURO 240,000 50

- Jesus Jeans S.r.l. con Socio Unico


- RdK0 S.r.l. - con Socio Unico


- Superga Trademark S.A. (1)

Luxembourg Basic Properties B.V. EURO 500,000 100

(1) shares subject to pledges with right of vote at Extraordinary Shareholders’ Meeting to the Lead Bank Unicredit Banca d’Impresa

S.p.A. for the “Syndicated” loan of July 16, 2007 with expiry on July 16, 2015.

BasicNet Group – Consolidated Financial Statements as at December 31, 2013 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ATTACHMENTS

98

ATTACHMENT 4

DECLARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS PURSUANT TO ARTICLE 154-BIS PARAGRAPH 5 AND 5-BIS OF LEGISLATIVE DECREE NO. 58 OF

FEBRUARY 24, 1998 “FINANCE ACT ON FINANCIAL INTERMEDIATION”

The undersigned Marco Daniele Boglione as Executive Chairman, Franco Spalla as CEO, and Paolo Cafasso as Executive Officer Responsible for the preparation of financial statements of BasicNet S.p.A., affirm, and also in consideration of Article 154-bis, paragraphs 3 and 4, of Legislative Decree No. 58 of February 24, 1998:

the adequacy for company operations and the effective application, of the administrative and accounting procedures for the preparation of the 2013 consolidated financial statements.

In addition, we declare that the consolidated financial statements:

a) correspond to the underlying accounting documents and records;

b) were prepared in accordance with International Financial Reporting Standards adopted by the European Union, and also in accordance with Article 9 of Legislative Decree No. 38/2005 and provide a true and fair representation of the balance sheet, financial position and results of the Issuer and of the consolidated companies;

c) The Directors’ Report includes a reliable analysis on the performance and operating result as well as the situation of the Issuer, together with a description of the risks and uncertainties to which they are exposed.

Marco Daniele Boglione Chairman

Franco Spalla Paolo Cafasso Chief Executive Officer Executive Officer Responsible

BasicNet Group – Separate Financial Statements as at December 31, 2013 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATORY NOTES

99

FINANCIAL STATEMENTS

AND EXPLANATORY NOTES

OF BASICNET S.P.A. AS AT DECEMBER 31, 2013

BasicNet Group – Separate Financial Statements as at December 31, 2013 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATORY NOTES

100

BASICNET S.p.A. – INCOME STATEMENT

The application of IAS 19 Revised (Employee benefits) required the restatement of the comparative figures for the previous year, as described in Note 2 – Accounting principles for the preparation of the financial statements.

(in Euro)

Note FY 2013 FY 2012

(restated) Changes

Direct sales (7) 1,525,118 1,668,676 (143,558) Cost of sales (8) (1,572,363) (1,383,257) (189,106)

GROSS MARGIN (47,245) 285,419 (332,664) Royalties and sourcing commissions (9) 22,932,619 24,031,490 (1,098,871) Other income (10) 6,857,673 7,014,555 (156,882) Sponsorship and media costs (11) (134,956) (200,154) 65,198 Personnel costs (12) (8,071,934) (7,342,287) (729,647) Selling, general and administrative costs, royalties expenses

(13)

(12,562,327)

(11,376,790)

(1,185,537)

Amortisation & Depreciation (14) (1,790,896) (1,683,295) (107,601) EBIT 7,182,934 10,728,938 (3,546,004) Net financial income (charges) (15) (484,863) (191,933) (292,930) Dividends (16) - 6,000,136 (6,000,136) Write-down of equity investments (17) - (9,920,000) 9,920,000 PROFIT BEFORE TAXES 6,698,071 6,617,141 80,930 Income taxes (18) (2,115,041) (3,366,046) 1,251,005 Non-recurring tax charges (19) - (497,325) 497,325

NET PROFIT FOR THE YEAR 4,583,030 2,753,770 1,829,260

BasicNet S.p.A. – Separate Financial Statements as at December 31, 2013 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATORY NOTES

101

BASICNET S.p.A. – COMPREHENSIVE INCOME STATEMENT

The “Comprehensive Income Statement” is reported below, prepared in accordance with IAS 1 Revised, which indicates the cost and revenue items which, as required or permitted by IFRS, are not recorded in the profit and loss account, but directly recorded as a change in equity. (in Euro)

FY 2013 FY 2012 (restated)

Changes

Profit for the year (A) 4,583,030 2,753,770 1,829,260

Effective portion of the Gains/(losses) on cash flow hedges

237,999 160,680 77,319

Remeasurment of post-employment benefits (IAS 19) (*)

58,795 (127,672) 186,467

Tax effect on other profits/(losses) (81,617) (9,077) (72,540)

Total other profits/ (losses), net of tax effect (B) 215,177 23,931 191,246

Total Comprehensive Profit (A)+(B) 4,798,207 2,777,701 2,020,506 Total Comprehensive Profit attributable to: - Parent company shareholders 4,798,207 2,777,701 2,020,506 - Minority interests - -

(*) items which may not be reclassified to the profit and loss account


EXPLANATORY NOTES

102

BASICNET S.p.A. – BALANCE SHEET

(in Euro)

ASSETS Note December 31, 2013 December 31, 2012 (restated)

Intangible fixed assets (20) 11,699,404 9,236,745 Plant, machinery and other assets (21) 1,299,260 1,386,049 Equity investments and other financial assets (22) 36,286,572 16,715,237 Deferred tax assets (23) 205,832 656,143

Total non-current assets 49,491,068 27,994,174

Net inventories (24) 760,325 850,150 Trade receivables (25) 8,434,111 7,176,878 Other current assets (26) 48,865,783 72,736,564 Prepayments (27) 3,041,353 2,789,171 Cash and cash equivalents (28) 3,142,757 400,762 Derivative financial instruments - - Total current assets 64,244,329 83,953,525

TOTAL ASSETS 113,735,397 111,947,699

LIABILITIES Note December 31, 2013 December 31, 2012 (restated)

Share capital 31,716,673 31,716,673 Treasury shares (5,764,864) (5,456,811) Other reserves 42,314,153 39,345,206 Net Profit 4,583,030 2,753,770

TOTAL SHAREHOLDERS’ EQUITY (29) 72,848,992 68,358,838

Provisions for risks and charges - - Loans (30) 6,645,483 4,214,334 Employee and Director benefits (31) 1,817,884 2,710,313 Other non-current liabilities (32) 280,666 291,995 Total non-current liabilities 8,744,033 7,216,642

Bank payables (33) 6,733,955 12,307,682 Trade payables (34) 5,463,063 3,899,248 Tax payables (35) 11,625,413 7,333,357 Other current liabilities (36) 8,047,133 12,170,538 Accrued expenses (37) 100,285 250,872 Derivative financial instruments (38) 172,523 410,522 Total current liabilities 32,142,372 36,372,219

TOTAL LIABILITIES 40,886,405 43,588,861

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

113,735,397 111,947,699

BasicNet S.p.A. – Separate Financial Statements as at December 31, 2013 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATORY NOTES

103

BASICNET S.p.A. – CASH FLOW STATEMENT (in Euro)

December 31, 2013 December 31, 2012 (restated)

A) OPENING SHORT-TERM BANK DEBT (9,531,920) (6,435,199)

B) CASH FLOW FROM OPERATING ACTIVITIES

Net profit for the year 4,583,030 2,753,770 Amortisation & Depreciation 1,790,896 1,683,295 Impairments on investments - 9,920,000 Changes in working capital: - (increase) decrease in trade receivables (1,257,233) (1,456,712) - (increase) decrease in inventories 89,826 (138,241) - (increase) decrease in other receivables 3,265,265 (20,120,574) - increase (decrease) in trade payables 1,563,815 580,674 - increase (decrease) in other payables 18,065 12,827,548 Net change in post-employment benefits (39,094) 140,979 Others, net 416,159 (371,389) 10,430,728 5,819,350


Investments in fixed assets: - tangible assets (209,637) (496,371) - intangible assets (3,957,129) (1,905,294) - financial assets (71,335) (67,571) Realisable value for fixed asset disposals: - tangible assets - - - intangible assets - - - financial assets - - (4,238,101) (2,469,236)


Loan (leasing) repayments (15,277) 58,084 Repayments of medium/long term loans (2,910,715) (2,375,000) Undertaking of short-term credit lines 7,500,000 - Acquisition of treasury shares (308,053) (1,215,739) Distribution of dividends - (2,914,180) 4,265,956 (6,446,835)

E) OPERATIONS NOT GENERATING CASH FLOWS

Conversion of financial receivables into investments - receivables from subsidiaries 19,500,000 10,000,000 - equity investments (19,500,000) (10,000,000)

E) CASH FLOW IN THE YEAR 10,458,583 (3,096,721)

F) CLOSING SHORT-TERM BANK DEBT 926,663 (9,531,920)

Interest paid for the year amounts to respectively Euro 1 million in 2013 and Euro 0.9 million in 2012, while income taxes paid in the year amount respectively to Euro 0.4 million in both years.

BasicNet S.p.A. – Separate Financial Statements as at December 31, 2013 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATYORY NOTES

104

BASICNET S.p.A. - STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(in Euro)

Reserves Other reserves

Number Shares

Share capital

Treasury shares

Legal reserve

Treasuru shares in portfolio

IAS19

Remeasu reserve

Cash flow

hedge reserve

Retained earnings

Net profit

/(loss)

Total

Balance at December 31, 2011 60,993,602 31,716,673 (4,241,072) 3,183,144 4,241,072 (5,040) (414,122) 26,982,660 8,247,741 69,711,056

Allocation of result as per Shareholders’ AGM resolution of April 27, 2012

- Legal reserve - 412,387 - - - - (412,387) - - Distribution of dividends - - - - - - (2,914,180) (2,914,180) - Retained earnings - - - - - 4,921,174 (4,921,174) -

Acquisition of treasury shares

(1,215,739) - 1,215,739 - - (1,215,739) - (1,215,739)

2012 Result - - - - - - 2,753,770 2,753,770


- Gains recorded directly to cash flow hedge reserve - - - - 116,493 - - 116,493

- Gains/(losses) recorded directly to equity for IAS 19 remeasurement

- - - (92,562) - - - (92,562)

Total comprehensive income statement - - - (92,562) 116,493 - 2,753,770 2,777,701

Balance at December 31, 2012 60,993,602 31,716,673 (5,456,811) 3,595,531 5,456,811 (97,602) (297,629) 30,688,095 2,753,770 68,358,838

Allocation of result as per Shareholders’ AGM resolution of April 29, 2013

- Legal reserve - 133,060 - - - - (133,060) - - Retained earnings - - - - - 2,620,710 (2,620,710) -

Acquisition of treasury shares

(308,053) - 308,053 - - (308,053) - (308,053)

2013 Result - - - - - - 4,583,030 4,583,030 Other comprehensive income statement items:

- Gains recorded directly to cash flow hedge reserve - - - - 172,549 - - 172,549

- Gains/(losses) recorded directly to equity for IAS 19 remeasurement

- - - 42,628 - - - 42,628

Total comprehensive income statement - - - 42,628 172,549 - 4,583,030 4,798,207

Balance at December 31, 2013

60,993,602 31,716,673 (5,764,864) 3,728,591 5,764,864 (54,974) (125,080) 33,000,752 4,583,030 72,848,992


EXPLANATORY NOTES

105

BASICNET S.p.A. – NET FINANCIAL POSITION

(in Euro)


Cash and cash equivalents 3,142,757 400,762 Bank overdrafts and bills (2,216,094) (9,932,682) Sub-total net liquidity available 926,663 (9,531,920)

Short-term portion of medium/long-term loans (4,517,860) (2,375,000)

Short-term net financial position – third parties (3,591,197) (11,906,920)

Superga medium/long term loan (1,781,250) (4,156,250) UBI Banca loan (4,821,425) - Medium/long lease payables (42,808) (58,084) Sub-total loans and leasing – third parties (6,645,483) (4,214,334)

Net financial position - third parties (10,236,680) (16,121,254)

Group financial receivables/ (payables) 40,673,530 62,516,702

Net Financial Position - Group 40,673,530 62,516,702

Total net financial position 30,436,850 46,395,448

The statement required by Consob Communication No. 6064293 of July 28, 2006 is reported below.


A. Cash 14,299 12,712 B. Other cash equivalents 3,128,458 388,050

C. Securities held for trading - -

D. Cash & cash equivalents (A)+(B)+(C) 3,142,757 400,762

E. Current financial receivables - -

F. Current bank payables (2,216,094) (9,932,682) G. Current portion of non-current debt (4,517,860) (2,375,000) H. Other Group financial receivables/ (payables) 40,673,530 62,514,997 I. Current financial debt (F)+(G)+(H) 33,939,576 50,207,315 J. Net current financial debt (I)-(E)-(D) 37,082,333 50,608,077 K. Non-current bank payables (6,645,483) (4,214,334)

L. Bonds issued - -

M. Derivatives fair value (172,523) (410,522) N. Non-current financial debt (K)+(L)+(M) (6,818,006) (4,624,856) O. Net financial debt (J)+(N) 30,264,327 45,983,221

The net debt differs from the Parent Company net financial position for the fair value of the derivatives, relating to the interest and currency hedging operations (Note 38).


EXPLANATORY NOTES

106

BASICNET S.p.A. – 2013 INCOME STATEMENT PREPARED AS PER CONSOB RESOLUTION NO. 15519 OF JULY 27, 2006

(in Euro)

FY 2013 FY 2012 (restated)

of which related

parties Note 41:

of which related

parties Note 41:

Direct sales 1,525,118 1,204,482 1,668,676 1,166,825 Cost of sales (1,572,363) (22,276) (1,383,257) (63,180)

GROSS MARGIN (47,245) 285,419 Royalties and sourcing commissions 22,932,619 3,877,840 24,031,490 3,783,079 Other income 6,857,673 6,666,200 7,014,555 6,666,315 Sponsorship and media costs (134,956) (200,154) Personnel costs (8,071,934) (7,342,287) Selling, general and administrative costs, royalties expenses

(12,562,327)

(5,666,611)

(11,376,790)

(5,378,868) Amortisation & Depreciation (1,790,896) (1,683,295) EBIT 7,182,934 10,728,938 Net financial income (charges) (484,863) 632,931 (191,933) 898,777 Dividends - 6,000,136 6,000,136 Write-down of equity investments - (9,920,000) (9,920,000) PROFIT BEFORE TAXES 6,698,071 6,617,141 Income taxes (2,115,041) (3,366,046) Non-recurring tax charges - (497,325)

NET PROFIT FOR THE YEAR 4,583,030 2,753,770


EXPLANATORY NOTES

107

BASICNET S.p.A. – BALANCE SHEET AS AT DECEMBER 31, 2013 PREPARED AS PER CONSOB RESOLUTION NO. 15519 OF JULY 27, 2006

(in Euro)

ASSETS December 31, 2013 December 31, 2012 (restated)

Of which Related parties

Note 26:


Note 26:

Intangible fixed assets 11,699,404 9,236,745 Plant, machinery and other assets 1,299,260 1,386,049 Equity investments and other financial assets

36,286,572 36,189,513 16,715,237 16,612,928

Deferred tax assets 205,832 656,143 Total non-current assets 49,491,068 27,994,174 Net inventories 760,325 850,150 Trade receivables 8,434,111 7,176,878 Other current assets 48,865,783 46,214,243 72,736,564 68,598,676 Prepayments 3,041,353 2,789,171 Cash and cash equivalents 3,142,757 400,762 Derivative financial instruments - - Total current assets 64,244,329 83,953,525

TOTAL ASSETS 113,735,397 111,947,699

LIABILITIES December 31, 2013 December 31, 2012 (restated)


Note 36:


Note 36:

Share capital 31,716,673 31,716,673 Treasury shares (5,764,864) (5,456,811) Other reserves 42,314,153 39,345,206 Net Profit 4,583,030 2,753,770

TOTAL SHAREHOLDERS’ EQUITY 72,848,992 68,358,838

Provisions for risks and charges - - Loans 6,645,483 4,214,334 Employee and Director benefits 1,817,884 2,710,313 Other non-current liabilities 280,666 291,995 Total non-current liabilities 8,744,033 7,216,642 Bank payables 6,733,955 12,307,682 Trade payables 5,463,063 3,899,248 Tax payables 11,625,413 7,333,357 Other current liabilities 8,047,133 4,785,344 12,170,538 9,878,699 Accrued expenses 100,285 250,872 Derivative financial instruments 172,523 410,522 Total current liabilities 32,142,372 36,372,219

TOTAL LIABILITIES 40,886,405 43,588,861

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

113,735,397 111,947,699

BasicNet S.p.A. – Separate Financial Statements as at December 31, 2013 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATORY NOTES

108

BASICNET S.p.A. – CASH FLOW STATEMENT AS AT DECEMBER 31, 2013 PREPARED AS PER CONSOB RESOLUTION NO. 15519 OF JULY 27, 2006 (in Euro)

December 31, 2013 December 31, 2012 (restated)

of which related parties

of which related parties

A) OPENING SHORT-TERM BANK DEBT (9,531,92) (6,435,199)

B) CASH FLOW FROM OPERATING ACTIVITIES

Net profit for the year 4,583,030 2,753,770 Amortisation & Depreciation 1,790,896 1,683,295 Impairments on investments

- 9,920,000 Changes in working capital: - (increase) decrease in trade receivables (1,257,233) (1,456,712) - (increase) decrease in inventories 89,826 (138,241) - (increase) decrease in other receivables 3,265,265 2,884,433 (20,120,574) (8,720,312) - increase (decrease) in trade payables 1,563,815 580,674 - increase (decrease) in other payables 18,065 (5,093,355) 12,827,548 9,635,595 Net change in post-employment benefits (39,094) 140,979 Others, net 416,159 (371,389) 10,430,728 5,819,350


Investments in fixed assets: - tangible assets (209,637) (496,371) - intangible assets (3,957,129) (1,905,294) - financial assets (71,335) (67,571) Realisable value for fixed asset disposals: - tangible assets - - - intangible assets - - - financial assets - - (4,238,101) (2,469,236)


Loan (leasing) repayments (15,277) 58,084 Repayments of medium/long term loans (2,910,715) (2,375,000) Undertaking of medium/long term loans 7,500,000 - Acquisition of treasury shares (308,053) (1,215,739) Distribution of dividends - (2,914,180) 4,265,956 (6,446,835)

E) OPERATIONS NOT GENERATING CASH FLOWS

Conversion of financial receivables into investments - receivables from subsidiaries 19,500,000 19,500,000 10,000,000 10,000,000 - equity investments (19,500,000) (19,500,000) (10,000,000) (10,000,000)

E) CASH FLOW IN THE YEAR 10,458,583 (3,096,721)

F) CLOSING SHORT-TERM BANK DEBT 926,663 (9,531,920)


EXPLANATORY NOTES

109

The undersigned herewith declares that the present financial statements reflect the underlying accounting entries.


The Chairman



EXPLANATORY NOTES

110

EXPLANATORY NOTES 1. GENERAL INFORMATION

BasicNet S.p.A. – with registered office at Turin, listed on the Italian Stock Exchange since November 17, 1999, in addition to its main function of Parent Company, manages the Network, providing the know-how for the use of the Group brands, undertaking research and development of the services and new products for the best utilisation of the brands, as well as undertaking activities of conception, development and communication and the Groups’ Information Technology systems. The Company coordinates and provides subsidiaries with administration, finance and control, IT and payroll management services.

The duration of BasicNet S.p.A. is fixed by the company by-laws until December 31, 2050.

The publication of the financial statements of BasicNet S.pA. for the year ended December 31, 2013 was approved by the Board of Directors on March 21, 2014. The final approval of the accounts is the responsibility of the Shareholders’ Meeting.

2. ACCOUNTING PRINCIPLES FOR THE PREPARATION OF THE FINANCIAL STATEMENTS

The financial statements for the year 2013 were prepared in accordance with IFRS issued by the International Accounting Standards Board (“IASB) and approved by the European Union at the date of the present document. IFRS refers to all the revised International Accounting Standards (IAS), and all of the interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) - previously known as the Standing Interpretations Committee (“SIC”).

The financial statements are prepared under the historical cost convention, modified where applicable for the measurement of certain financial instruments, as well as on the going concern assumption.

The accounting principles utilised are in line with those used in the previous year.

Accounting standards, amendments and interpretations applied from January 1, 2013

On June 16, 2011, IASB issued an amendment to IAS 19 – Employee benefits, applicable to the annual financial statements for the year 2013, with restatement of the 2012 comparative figures in accordance with IAS 8 – Accounting policies, changes in accounting estimates and errors. The new version of IAS 19 requires, in particular, for the post-employment benefits, the recognition of the changes of the actuarial gains/losses under other items of the Comprehensive Income Statement, thus eliminating the other options previously permitted, including that adopted by the Company, which recorded these items in the profit and loss for the year. The cost relating to employment services, as well as the interest on the “time value” component in the actuarial calculations will remain in the profit and loss account. These amendments resulted in the restatement of the income statement, comprehensive income statement and the cash flow statement for the year 2012 reported for comparative purposes (“restated”); there was no impact on the balance sheet.

BasicNet S.p.A. – Separate Financial Statements as at December 31, 2013 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXPLANATORY NOTES

111

The effects from the adoption of IAS 19 Revised are reported below (in Euro thousands):

Income statement FY 2012

Personnel costs – actuarial loss (128)

(Income taxes – Tax effect actuarial loss) 35

Impact for the year (93)

Comprehensive income statement FY 2012

Impact for the year (93) Remeasurement of post-employment benefits (IAS 19)

- actuarial losses 128 - tax effect 27.5% (35)

Impact on comprehensive profit for the year - On May 12, 2011 the IASB issued IFRS 13 – Fair value measurement which clarifies how the fair value is calculated for the purposes of the financial statements and is applied to all IFRS standards which require or permit the calculation of the fair value or the presentation of information based on the fair value. The standard, applied in prospective manner since January 1, 2013, did not result in any significant impact for the Company.

On June 16, 2011, the IASB issued an amendment to IAS 1 – Presentation of Financial Statements requiring companies to group together items within other comprehensive income according to whether they may or may not be subsequently reclassified to the profit or loss account. The adoption of this amendment did not have any significant impacts for the Company.

On December 16, 2011, the IASB issued a number of amendments to IFRS 7 – Financial instruments: additional disclosure, which requires disclosure in the financial statements on the effects or potential effects deriving from remuneration rights on the financial assets and liabilities in the balance sheet. The amendments must be applied from the periods beginning on or after January 1, 2013. The adoption of this amendment did not have any impact for the Company.

On May 17, 2012, the IASB issued a number of IFRS amendments – Improvements to international accounting standards - 2009-2011 Cycle. The principal amendements refer to:

IAS 1 - Presentation of financial statements – comparative information. The amendment clarifies the manner of presentation of comparative information when a company modifies an accounting principle or undertakes an adjustment or retrospective reclassification.

IAS 16 - Property, plant and equipment. The amendment clarifies that spare parts and replacement equipment must be classified in the account Property plant and equipment if utilised for more than one year, and in inventory if utilised for only one year.

IAS 32 – Financial instruments – presentation in the financial statements. The amendment eliminates an inconsistency between IAS 12 - Income Taxes and IAS 32 in the recognition of income taxes deriving from distributions to shareholders, establishing that these must be recognised to the income statement in the amount that the distribution relates to income generated from operations originally recognised to the income statement.

The adoption of these improvements did not have any impact on the valuation of the accounts in the financial statements as at December 31, 2013.


EXPLANATORY NOTES

112

Accounting standards, amendments and interpretations not yet effective and not adopted in advance by the Company

On May 12, 2011, the IASB issued IFRS 10 – Consolidated Financial Statements, replacing SIC 12 – Consolidation: special purpose vehicles and part of IAS 27 – Consolidated and separate financial statements. This latter was renamed Separate financial statements and only governs the accounting treatment of investments in the separate financial statements. The new standard, in addition to redefining the concept of control, provides a guide on determining the existence of control where such is difficult to ascertain. The standard must be applied in retrospective manner, at the latest, from the periods beginning from, or after, January 1, 2014.

On May 12, 2011, the IASB issued IFRS 11 – Joint arrangements, which replaces IAS 31 – Interests in Joint Ventures and SIC13 – Jointly Controlled Entities: Non-Monetary Contributions by Venturers. The new standard establishes the criteria for the establishment of the substance of joint arrangements, based on the rights and obligations of the agreements, rather than on the legal form therein and establishes the equity method as the only method to be applied to holdings in joint ventures in the consolidated financial statements. The standard must be applied in retrospective manner, at the latest, from the periods beginning from, or after, January 1, 2014. The adoption of the standard will have no impact on the financial statements.

On May 12, 2011, the IASB issued IFRS 12 – Disclosure of Interests in Other Entities, which is a new and complete standard on additional disclosure for all forms of investments, including those in subsidiaries, joint ventures, associated companies, special purpose entities and other non-consolidated vehicle companies. The standard must be applied in retrospective manner, at the latest, from the periods beginning from, or after, January 1, 2014.

On December 16, 2011, the IASB issued a number of amendments to IAS 32 – Financial instruments: presentation in the financial statements, to clarify the application of certain offsetting criteria for financial assets and financial liabilities in IAS 32. The amendments are effective for annual periods beginning on or after January 1, 2014 and are required to be applied retrospectively. The Company did not identify any significant impact from the application of these amendments.

On May 29, 2013, the IASB issued an amendment to IAS 36 – Disclosure on recoverable amount of non-financial assets, which governs the disclosure on the recoverable value of impaired assets, if this amount is based on the fair value net of selling costs. The amendments must be applied retrospectively from periods beginning from January from 1, 2014. Advanced application is permitted for the periods in which the entity has already applied IFRS 13. The application of these amendments are not expected to have significant impact for the Company.

On June 27, 2013, the IASB issued some minor amendments to IAS 39 – Financial Instruments: recognition and measurement, entitled “Novations of derivatives and continuity of Hedge Accounting”. The amendments permit continuation of hedge accounting in the case in which a derivative financial instrument, designated as a hedge instrument, is replaced following the application of law or regulations in order to replace the original counterparty so as to guarantee the fulfilment of the obligation assumed and where certain conditions are satisfied. The same amendment will also be included in IFRS 9 – Financial instruments. These amendments must be applied retrospectively from periods beginning from January 1, 2014. No significant impact is expected from the adoption of these amendments.

3. FORMAT OF THE FINANCIAL STATEMENTS

BasicNet S.p.A. presents its income statement by nature of cost items; the assets and liabilities are classified between current and non-current. The cash flow statement was prepared applying the indirect method. The format of the financial statements applied the provisions of Consob Resolution No. 15519 of July 27, 2006 and Notice No. 6064293 of July 28, 2006 on financial disclosure requirements.


EXPLANATORY NOTES

113

4. ACCOUNTING PRINCIPLES

The present financial statements were prepared on the going concern basis, and in accordance with the accruals principle. The financial statements are presented in Euro and all values are rounded into thousands of Euro.

The main accounting principles adopted in the preparation of the financial statements at December 31, 2013 are disclosed below:

Revenue recognition

Revenues are recognised in accordance with the probability that the company will receive economic benefits and the amount can be determined reliably. Revenues are recognised net of returns, discounts and allowances.

In particular, revenues from the sale of goods are recognised when the significant risks and benefits of the ownership of the goods are transferred to the buyer, the sales price has been agreed or determinable and collection of the receivable is expected. This moment generally corresponds with the transfer of ownership which coincides, normally, with the shipping or delivery of the goods.

Royalties and sourcing commissions are recognised on an accruals basis in accordance with the underlying contracts.

Recognition of costs and expenses

Costs and expenses are recognised in accordance with the accruals principle.

Cost relating to the preparation and presentation of sample collections are recognised in the income statement in the year in which the sales of the relative collections are realised. Any differences are recorded through accruals.

Interest income and expenses, and income and charges

Interest income and expenses and other income and expenses are recorded and shown in the financial statements on the accrual basis.

In accordance with IAS 23 – Borrowing costs, the financial charges directly attributable to the purchase, construction and production of the asset which requires a significant amount of time before use or sale are capitalised together with the value of the asset. Such an event has not arisen up to the present moment for the Group. If these conditions are not met the financial charges are expensed directly to the income statement.

Dividends

Dividends received

Dividends from investees are recognised in the income statement when the right to receive the dividend is established.

Dividends distributed

Dividends distributed are represented as changes in shareholders’ equity in the year in which the Shareholders’ Meeting approves the distribution and payment.


EXPLANATORY NOTES

114

Transactions in foreign currencies

The receivables and payables originally expressed in foreign currencies are translated into Euro at the exchange rate when the transaction originated. Exchange differences arising on collections and payments in foreign currencies are recorded in the income statement.

Revenues and income, costs and charges related to currency transactions are recorded at the exchange rate at the transaction date.

At the end of the period, the assets and liabilities valued in foreign currencies, with the exception of fixed assets, are recorded at the exchange rates at the balance sheet date and the relative gains or losses on exchange are recorded in the income statement.

Income taxes

Income taxes include all the taxes calculated on the assessable income of the Company. Taxes on income are recognised in profit and loss, except where they relate to items charged or credited directly to equity, in which case the tax effect is also recognised directly in equity.

Other taxes not related to income, such as taxes on property and share capital, are included under operating charges.

Deferred taxes are calculated on all the temporary differences arising between the assessable income of an asset or liability and the relative book value in the financial statements, with the exception of the goodwill not fiscally deductible and of those differences deriving from investments in subsidiaries for which a write-down is not expected in the future.

Deferred tax assets on fiscal losses and unutilised tax credits carried forward are recognised only for those amounts for which it is probable there will be future assessable income to recover the amounts. The deferred tax assets and liabilities are offset when the income tax is applied by the same fiscal authority and when there is a legal right of compensation.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the temporary difference is reversed.

BasicNet S.p.A. adhered to the national tax consolidation in accordance with Article 117 and thereafter of the CFA - Presidential Decree No. 917 of December 22, 1986 for the three year period.

BasicNet S.p.A. acts as the consolidating company and calculates a single assessable base for the Group of companies adhering to the national tax consolidation and therefore benefits from the possibility of offsetting assessable income with assessable losses in a single tax declaration. Each company participating in the consolidation transfers its taxable income or tax loss to the consolidating company. BasicNet S.p.A. recognizes a receivable for companies contributing taxable income, corresponding to the amount of IRES (corporate income tax) payable on their behalf. For companies contributing a tax loss, BasicNet S.p.A. recognises a payable for the amount of the loss actually set off at Group level.

Earnings per share/ Diluted earnings per share

In accordance with paragraph 4 of IAS 33 – earnings per share, this latter is only presented at consolidated financial statement level.


EXPLANATORY NOTES

115

Provisions and contingent liabilities

BasicNet S.p.A. may be involved in legal and tax disputes, concerning specific issues and in various jurisdictions. Considering the uncertainties relating to these issues, it is difficult to predict with certainty any future payments required. In addition, the Company has instigated legal disputes for the protection of its Trademarks, and of its products, against counterfeit products. The cases and disputes against the Company often derive from complex legal issues, which are often subject to varying degrees of uncertainty, including the facts and circumstances relating to each case, jurisprudence and different applicable laws.

In the normal course of business, Management consults with its legal consultants and experts on legal matters.

The Company accrues a liability against disputes when it considers it is probable that there will be a financial payment made and when the amount of the losses arising can be reasonably estimated.

The contingent liabilities are not recorded in the financial statements, but are reported as a disclosure in the Notes unless the probability is remote. In accordance with paragraph 10 of IAS 37 – Provisions, contingent liabilities and contingent assets a contingent liability is (a) a possible obligation which derives from past events and whose existence will be confirmed only on the occurrence or otherwise of one or more future uncertain events, not entirely under the control of the enterprise, or (b) a current obligation which derives from past events but which cannot be recorded in the financial statements as the payment is improbable or cannot be reliably estimated.

Use of estimates

The preparation of the financial statements and the relative notes in application of IFRS require that management make estimates and assumptions on the values of the assets and liabilities in the financial statements and on the information relating to the assets and contingent liabilities at the balance sheet date. The actual results could differ from such estimates.

Estimates are utilised to measure intangible and tangible assets subject to impairment tests as described above, in addition to recognise provisions on doubtful debts, inventory obsolescence, amortisation and depreciation, write-down of assets, employee benefits and income taxes.

The estimates and assumptions are reviewed periodically and the effects of all variations are immediately recognised in the income statement.

Intangible fixed assets

Intangible assets acquired or produced internally are recorded under assets, in accordance with IAS 38 – Intangible Assets, only if they can be identified, controlled by the Company, capable of generating future economic benefits and when the cost of the asset can be determined reliably.

Intangible assets with definite useful life are measured at purchase or production cost and amortised on a straight-line basis over their estimated useful life.

Software

Software acquired and IT programmes developed internally are amortised over five years, while the costs incurred to maintain or upgrade the original operational standard are expensed in the year and are not capitalised.


EXPLANATORY NOTES

116

Development Costs

Development costs are capitalised when the capacity to generate future economic benefits is demonstrated and the other conditions required by IAS 38 – Intangible assets are satisfied.

Trademarks and patents

The brand K-Way is considered an intangible asset with indefinite useful life, in line with that at Group level for the principal brands, Kappa, Robe di Kappa and Superga; as such these assets are not amortised but subject to an impairment test at least annually. This depends on the strategic positioning reached whereby it is not currently possible to predict a time limit on the generation of future cash flow streams.

The patent rights are amortised over ten years.

Other intangible assets

Other intangible assets recognised on acquisition are recorded separately from goodwill, if their fair value can be determined on a reliable basis.

Goodwill

In the case of business combinations, the assets, the liabilities and the contingent liabilities acquired and identifiable are recorded at their fair value at the date of acquisition. The positive difference between the acquisition cost and the portion held by the Group of the current value of these assets and liabilities is classified as goodwill and recorded in the financial statements as an intangible asset. Any negative difference (“negative goodwill”) is recognised in the income statement at the date of acquisition.

Goodwill is not amortised, but is subject annually, or more frequently if specific events or circumstances indicate the possibility of having incurred an impairment, to verifications of any reduction in value, as provided by IAS 36 Reduction in value of assets. After initial recognition, goodwill is measured at cost less any loss in value. Impairments of goodwill are never reversible.

Plant, equipment and other assets

Plant and equipment are recorded at purchase or production costs, including accessory charges and direct and indirect costs, for the amount reasonably attributable to the assets.

Subsequent expenditures are only capitalised where they increase the future economic benefits of the asset to which they relate. All other expenditures are expensed as incurred.

Plant and equipment are amortised on a straight-line basis over the estimated useful life of each asset. The depreciation rates by asset category are shown below:

Description Estimated useful life

years

Plant and machinery 8

Furniture and furnishings 5-8

Motor vehicles 4

EDP 5-8

Fixed assets which at the balance sheet date are lower than the book value are recorded at this lower value, which however may not be maintained at this value in subsequent periods if the reasons for the adjustment no longer exist.


EXPLANATORY NOTES

117

Ordinary maintenance costs are fully charged to the income statement.

Advances and costs for property, plant and equipment in progress which are not yet utilised in the operating activities are reported separately.

Leased assets

Property, plant and equipment acquired through finance lease contracts are recognised under the finance method as per IAS 17 – Leasing and recorded under assets at the purchase price decreased by depreciation.

The depreciation of these assets is reflected in the financial statements applying the same criteria as for the fixed assets to which the lease contracts refer.

Within liabilities a payable is recorded, under short-term and medium term, towards the leasing company; the lease payments are reversed from expenses for the use of third party assets and the financial charges for the period are recognised on an accruals basis.

Impairment

The carrying value of the assets of the Company are measured at each reporting date to determine whether there has been a loss in value, in which case an estimate is made of the recoverable value of the asset. A loss in value (impairment) is recorded in the income statement when the carrying value of an asset or a cash-generating unit exceeds its recoverable value.

The indefinite intangible assets (including goodwill) are tested annually and whenever there is an indication of a possible loss, in order to determine whether a loss in value has occurred.

Measuring recoverable amount

The recoverable value of a non-financial asset is the higher of the fair value less costs to sell and the value in use. For the determination of the value in use, the future cash flows are discounted utilising a rate which reflects the current market value of money and of the related risks of the activity. In the case of activities which do not generate cash flows sufficiently independent, it is necessary to calculate the recoverable value of the cash-generating unit to which the asset belongs.

Write-back of value

The value is recovered when changes take place in the valuations to determine the recoverable value. The recoverable value is recorded in the income statement adjusting the book value of the asset to its recoverable value. This latter must not be above the value which would have been determined, net of depreciation, if no loss in value of the asset had been recorded in previous years.

Equity investments and other financial assets

In the separate financial statements of BasicNet S.p.A. the investments in subsidiaries, associates and companies under joint control are recorded at cost, adjusted for any loss in value; the cost includes any directly attributable accessory charges. The positive difference, arising on purchase, between the acquisition cost and the share of net equity of the investment of the Company is, therefore, included in the carrying value of the investment.

Where there is an indication of a loss, the carrying value of the investment must be compared with the recoverable value, represented by the higher between the fair value, net of selling costs, and the value in use. For non-listed investments, the fair value is determined with reference to binding sales agreement.


EXPLANATORY NOTES

118

The value in use is determined discounting the expected cash flows from the investment at the weighted average cost of capital, net of the financial debt. The cash flows are determined on the basis of reasonable and identifiable assumptions, represented by the best estimates of the future economic conditions.

Where an impairment loss exists, it is recognised immediately through the income statement. Where the reasons for the write-down no longer exist, the value of the investment is restored within the limit of the original cost through the income statement.

Where the share of losses pertaining to the company in the investment exceeds the carrying value of the investment, the value of the investment is written down and the share of further losses is recorded as a provision under liabilities if the Company has the obligation to cover such losses.

Subsidiaries

Control exists when the Company has the power, directly or indirectly, to determine the financial and operating policies of an entity so as to obtain benefits from its activities.

Associated companies

Associated companies are companies in which the Company exercises a significant influence but does not exercise control or joint control. Generally a shareholding between 20% and 50% of the voting rights indicates significant influence.

Joint-ventures

Joint ventures are companies in which joint control is exercised, in accordance with that defined in IAS 31 – Interest in joint ventures.

Other companies

The other investments are those in which a holding of less than 20% are held.

Other financial assets

Financial assets consist of loans are recorded at their estimated realisable value.

Net inventories

Inventory is valued under the average weighted cost method.

Inventories are measured at the lower of purchase or production cost and their net realisable value.

Inventories include incidental charges and direct and indirect costs that can be reasonably allocated. Obsolete and slow-moving inventories are written down in relation to their possible utilisation or realisable value. When in future periods the reasons for the write-down no longer exist, they are restored to the original value.

Receivables and other current assets

Receivables recorded under current assets are stated at their nominal value, which substantially coincides with the amortised cost. The initial value is subsequently adjusted to take into account any write-downs which reflect the estimate of the losses on receivables, determined based on a specific provision on doubtful debts and a general provision based on past experience. Medium/long-term receivables which


EXPLANATORY NOTES

119

include an implicit interest component are discounted utilising an appropriate market rate. Receivables transferred without recourse, in which all the risks and benefits substantially are transferred to the factoring company, are reversed in the financial statements at their nominal value.

Cash and cash equivalents

The liquid assets principally relate to current bank accounts and cash. They are recorded for amounts effectively available at year end.

The cash equivalents are invested in highly liquid temporary financial instruments.

Accruals and prepayments

The account includes amounts related to two accounting periods, in accordance with the accruals concept.

Treasury shares

Treasury shares are recognised as a deduction from equity. The original cost of the treasury shares and the revenues deriving from any subsequent sale are recognised as equity movements.

Provisions for risks and charges

Provisions for risks and charges are recorded in the balance sheet only when a legal or implicit obligation exists deriving from a past event that determines the commitment of resources to produce economic benefits for their compliance and a reliable estimate of the amount can be determined.

Employee benefits

On June 16, 2011, the IASB issued an amendment to IAS 19 – Employee benefits, applicable to the annual financial statements for the year 2013, with restatement of the 2012 comparative figures in accordance with IAS 8 – Accounting policies, changes in accounting estimates and errors. The new version of IAS 19 requires, in particular, for the post-employment benefits, the recognition of the changes of the actuarial gains/losses under other items of the Comprehensive Income Statement, thus eliminating the other options previously permitted, including that adopted by the Company, which recorded these items in the profit and loss for the year. The cost relating to employment services, as well as the interest on the “time value” component in the actuarial calculations will remain in the profit and loss account. These amendments resulted in the restatement of the income statement, comprehensive income statement and the cash flow statement for the year 2012 reported for comparative purposes (“restated”); there was no impact on the balance sheet.

Payables

Financial payables are recorded at their nominal value which approximates the amortised cost. The book value of the trade and other payables at the balance sheet date approximates their fair value.

Derivative instruments and hedge accounting

BasicNet S.p.A. utilises derivative financial instruments to hedge interest rate fluctuations on some loans.

These instruments are initially recorded at their fair value, and subsequently measured according to whether they are “hedged” or “not hedged” as per IAS 39.

It is recalled that the BasicNet S.p.A. does not undertake derivative contracts for speculative purposes.


EXPLANATORY NOTES

120

The hedging may be of two types:

Fair value hedges; Cash flow hedges.

BasicNet S.p.A., before signing a hedge contract, undertakes a close examination of the relationship between the hedge instrument and the item hedged, in view of the objectives to reduce the risk, also evaluating the existence and the continuation over the life of the derivative financial instrument of the effectiveness requirements, necessary for the hedge accounting.

After their initial recognition, the derivatives are accounted as follows:

a) Fair value hedges

The changes in their fair value are recognised in the income statement, together with the changes in the fair value of the relative assets and liabilities hedged. The Company does not utilise fair value hedge instruments.

b) Cash flow hedges

The part of the profit or loss of the hedge instrument, considered effective, is recorded directly in the comprehensive income statement; the non-effective part is however recorded immediately in the income statement. The accumulated amounts in the comprehensive income statement are recorded in the income statement in the year in which the scheduled hedge operation matures or the instrument hedged is sold, or when the effectiveness requirements for hedge accounting no longer exist.

c) Derivative financial instruments which do not have the effectiveness requirements for hedge accounting

The derivative financial instruments which do not comply with the requirements of IAS 39 for the identification of the hedge, where present, are classified in the category of financial assets and liabilities measured at fair value through the profit and loss account.

Hierarchy of Fair Value according to IFRS 7.

IFRS 7 requires that the classification of financial instruments measured at fair value is determined based on the quality of the input sources used in the valuation.

The IFRS 7 classification implies the following hierarchy:

- level 1: determination of fair value based on prices listed (“unadjusted”) in active markets for identical assets or liabilities;

- level 2: determination of fair value based on other inputs than the listed prices included in “level 1” but which are directly or indirectly observable. This category includes the instruments with which the Company mitigates the risk deriving from fluctuations in interest rates and currencies;

- level 3: determination of the fair value based on valuation models whose input is not based on observable market data (“unobservable inputs”).

5. OTHER INFORMATION

The subsequent events to the end of the year and the outlook for the current year are reported in the Directors’ Report.


EXPLANATORY NOTES

121

EXPLANATORY NOTES (IN EURO THOUSANDS)

6. DISCLOSURE BY OPERATING SEGMENT

As the Company simultaneously publishes the statutory and consolidated financial statements, the operating segment information is provided only for the consolidated financial statements in accordance with IFRS 8 – Operating segments.

7. DIRECT SALES

The direct sales of products undertaken by the Company refer only to samples of clothing and footwear to licensees. The breakdown of sample sales is as follows:

FY 2013 FY 2012

Net sales to third parties 320,636 501,851

Net sales to subsidiaries 1,204,482 1,166,825

Total direct sales 1,525,118 1,668,676

Sales to subsidiaries are detailed in Note 41.

The breakdown of direct sales by geographic area is reported below:

FY 2013 FY 2012

Italy 1,121,285 1,210,094

Europe 243,081 264,445

The Americas 89,657 114,776

Asia and Oceania 67,405 75,580

Middle East and Africa 3,690 3,781

Total 1,525,118 1,668,676

The decrease in sales totalling Euro 0.1 million is due to a change in the shipping of the samples at year-end.


EXPLANATORY NOTES

122

8. COST OF SALES

The breakdown of the cost of sales is as follows:

FY 2013 FY 2012

Samples purchased 1,232,314 1,086,413 Accessories purchases 13,532 23,554 Freight charges and accessory purchasing cost 214,694 275,446 Change in inventory of raw materials, ancillary, consumables and goods

51,166

(113,256)

Prototype purchase and development 47,928 77,758 Other 12,729 33,342

Total cost of sales 1,572,363 1,383,257

The breakdown of the sample purchases and accessory purchases by geographic area is reported below:

FY 2013 FY 2012

Asia and Oceania 756,958 758,136 Italy 395,609 129,309 Europe 45,017 141,741 The Americas 38,692 60,463 Middle East and Africa 9,570 20,318

Total 1,245,846 1,109,967

Sample purchases were made by BasicNet S.p.A. for resale to the licensees. The change is related to the composition of the collections and the timing of shipment.

9. ROYALTIES AND SOURCING COMMISSIONS

The breakdown of royalties and sourcing commissions by geographic area is reported below.

FY 2013 FY 2012

Europe 10,718,889 11,590,533 The Americas 1,024,369 1,459,693 Asia and Oceania 9,983,247 10,274,349 Middle East and Africa 1,206,114 706,915

Total 22,932,619 24,031,490

Royalty income comprises fees on licenses for know-how and the development of the Group brand collections, in addition to royalties for the use of the K-Way brand. Sourcing commissions stem from usage rights of the know-how and are charged to the licensee producers on the sales made by them to the licensees of the Network.

The decrease on the European market is due to the slowdown in the first part of the year, which recovered in the second half thanks to the streamlining actions undertaken by some licensees and signs of commercial recovery in some countries. The declines in The Americas, Asia and Oceania were due to exchange rate movements - particularly in those countries which although growing sales in local currency terms, reported a contraction on conversion into Euro. In addition, the destocking activity of some important licensees, in particular in the first part of the year, had an impact on the sourcing commissions.


EXPLANATORY NOTES

123

10. OTHER INCOME

FY 2013 FY 2012

Assistant services to Group companies 6,666,200 6,666,315 Other income 192,473 348,240

Total other income 6,857,673 7,014,555

The “revenues for assistant services to Group companies” originates from assistance and consultancy in administration and finance, payroll, commercial contract agreements and IT services provided by the Parent Company to the subsidiaries BasicItalia S.p.A., Basic Village S.p.A., Basic Trademark S.A., Superga Trademark S.A., AnziBesson Trademark S.r.l., Jesus Jeans S.r.l and Fashion S.p.A.

“Other income” in 2013 includes Euro 31 thousand for revenues for sub-rental, Euro 59 thousand for expense recharge, Euro 33 thousand for contributions to the trade fair Bread&Butter invoiced to the German licensee, Euro 70 thousand for prior year income, in addition to minor amounts.

11. SPONSORSHIP AND MEDIA COSTS

FY 2013 FY 2012

Communication contributions 67,308 15,158 Promotional expenses 9,215 65,709 Advertising 58,433 119,287

Total sponsorship and media costs 134,956 200,154

The “communication contributions” and the “advertising and promotion expenses” refer to activities of an institutional nature relating to attendance at events and trade fairs, including non-recurring.

12. PERSONNEL COSTS

FY 2013 FY 2012

Wages and salaries 5,699,675 5,149,639 Social security 1,990,554 1,837,669 Post-employment benefits 381,705 354,979

Total personnel costs 8,071,934 7,342,287


EXPLANATORY NOTES

124

Personnel costs include all charges relating to the provision of employment services of BasicNet S.p.A.. The increase is due to salary revisions, contractual increases and related social security charges. The changes in the headcount during the year were as follows:




Male/ Female Total Male/

Female Average Male/ Female Total Male/

Female Average

Executives 10 / 8 18 50 / 49 49 10 / 8 18 49 / 48 48

Managers 1 / - 1 51 / - 51 1 / - 1 50 / - 50

White-collar 51 / 104 155 36 / 37 37 52 / 105 157 36 / 36 36

Blue-collar 1 / 2 3 33 / 41 38 2 / 2 4 38 / 40 39

Total 63 / 114 177 39 / 38 38 65 / 115 180 38 / 37 37

13. SELLING, GENERAL AND ADMINISTRATIVE COSTS, AND ROYALTIES EXPENSES

The breakdown of service costs, amounting to approx. Euro 12.6 million, is shown in the table below:

FY 2013 FY 2012

Rental, accessory and utility expenses 3,265,081 3,179,135 Directors and Statutory Auditors emoluments 2,247,635 2,093,853 Commercial expenses 2,072,339 2,143,806 Sales services 353,754 430,547 Doubtful debt provision 320,000 144,000 Other general expenses 4,303,518 3,385,449

Total selling, general and administration costs 12,562,327 11,376,790

“Rental charges” principally relate to the offices of the company, owned by the subsidiary Basic Village S.p.A.

The company’s remuneration policy, as well as Directors and Statutory Auditors emoluments for the offices held, pursuant to Article 78 of Consob Regulation No. 11971/97 and thereafter are reported in the Remuneration Report pursuant to Article 123-ter of the CFA which is available on the company’s internet site www.basicnet.com, to which reference should be made.

“Commercial expenses” include costs related to the commercial activities and consulting costs for stylistic and graphic material.

“Sales services” include expenses for exporting samples in addition to “royalties’ charges” principally relating to co-branding operations.

The “doubtful debt provision”, amounting to Euro 300 thousand, increased by Euro 176 thousand, due to the increase in the trade receivable balance; the provision was calculated to cover possible insolvency risks, related to the present liquidity difficulties in the national market.


EXPLANATORY NOTES

125

The account “other general expenses” includes legal and professional fees, bank charges, other taxes, consumption materials, hire charges, and corporate and other minor expenses. The increase of Euro 1 million is principally due to higher tax and legal consultancy fees, in part non-recurring, in addition to the increase in indirect tax charges.

14. AMORTISATION AND DEPRECIATION

Depreciation of fixed assets includes depreciation on finance lease assets.

FY 2013 FY 2012

Amortisation 1,494,470 1,378,810 Depreciation 296,426 304,485

Total amortisation & depreciation 1,790,896 1,683,295

15. NET FINANCIAL INCOME (CHARGES)

FY 2013 FY 2012

Bank interest income 2.937 718

Intercompany interest income 649.100 898.777

Bank interest expense (290.111) (300.148)

Intercompany interest expense (16.170) -

Interest on medium/long term loans (525.332) (487.241)

Medium/long-term loan financial charges (16.397) -

Other interest payable (264.879) (153.536)

Total financial income and charges (460.852) (41.430)

Exchange gains 215.880 63.352

Exchange losses (239.891) (213.855)

Total exchange gains and losses (24.011) (150.503)

Total financial income/(charges) (484.863) (191.933)

“Intercompany interest income” derives from operations during the year and regulated through intercompany accounts, remunerated at market rates. The decrease compared to the previous year principally stems from the reduction in loans to BasicItalia S.p.A. following the capital injection made in favour of the subsidiary, with the conversion of part of the loan. “Bank interest expense” is in line with the previous year.

“Interest on medium/long-term loans” refers to the loan obtained in July 2007 for the acquisition by the Group of the Superga brand and the amortising loan obtained from UBI Banca in the second half of the year. “Exchange gains realised” in 2013 amounted to Euro 160 thousand and “exchange losses realised” amounted to Euro 177 thousand. The translation of credit and debit balances at year-end resulted in the recognition of “non-realised exchange losses” of Euro 63 thousand and “non-realised exchange gains” of Euro 55 thousand.


EXPLANATORY NOTES

126

16. DIVIDENDS

In 2012, the subsidiary BasicProperties B.V. distributed to BasicNet dividends of Euro 6 million due to the financial income deriving from dividends distributed by the companies of the Group, to the subsidiary.

In 2013, the subsidiary did not distribute dividends as a significant part of the liquidity generated through ordinary activities was utilised for the payment of the liabilities accrued in 2012 following the agreement with the Tax Administration.

17. WRITE-DOWN OF INVESTMENTS

The amount in 2012 refers to the write-down of the investment in BasicItalia S.p.A. following the impairment test. The impairment test undertaken in 2013 did not give rise to any write-down in the 2013 accounts. Reference should be made to Note 22 for further information.

18 INCOME TAXES

Current income taxes

Current income taxes refer to IRAP Regional Tax of Euro 541 thousand and IRES Corporation Tax of Euro 1.2 million.

The reconciliation between the theoretical and actual rate is shown below:

Assessable for IRES


Ordinary rate applicable 27.50% 27.50% Pre-tax result (current and deferred) 6,698,071 6,617,141 Theoretical tax on statutory result 1,841,970 1,819,714 Effect of increases (decreases) to the ordinary rate: - permanent differences: . non-deductible sales rep. expenses 236,496 250,152 . non-deductible (exempt) depreciation/amortisation 54,400 42,491 . vehicle management expenses 210,034 265,493 . prior year expenses/income non-deductible (exempt) 121,305 (65,121) . exempt dividends - (5,700,129) . investment write-down - 9,920,000 . other permanent differences 669,229 744,020

Assessable income 7,989,535 12,074,047 Effective tax 2,197,122 3,320,363

Effective rate 32.80% 50.18%

Difference between theoretical and actual rate 5.30% 22.68%


EXPLANATORY NOTES

127

Reconciliation current IRES December 31, 2013 December 31, 2012

Pre-tax result and permanent differences 7,989,535 12,074,047

Losses carried forward not utilised (3,430,406) -

Effective tax charge 4,559,129 1,253,761 12,074,047 3,320,363

Temporary differences in the year affecting deferred taxes (214,156) (58,893) (647,922) (178,178)

Recovery prior year taxes (IRAP) - (277,331)

Current taxes on temporary differences and reversals (58,893) (455,509)

Separate taxation relating to CFC Hong Kong 10,000 9,000

Total current income taxes 1,204,867 2,873,854

Reconciliation current IRAP December 31, 2013 December 31, 2012

Ordinary rate applicable 3.90% 3.90%

Assessable IRAP 18,327,013 10,844,295

Theoretical tax charge 714,754 422,928

Effect of increases (decreases) to the ordinary rate: - vehicle management expenses 8,203 16,090 - prior year expenses/income non-deductible (exempt) (84,981) 65,121 - depreciation/amortisation for tax purposes (605,159) (478,187) - investment write-down - 9,920,000 - tax amnesty (3,748,960) (2,772,774) - other permanent differences - - - temporary differences on which deferred taxes not accrued:

(12,000)

-

Assessable IRAP restated 13,884,116 17,594,545

Effective tax 541,481 686,187

Effective rate 2.95% 6.33%

Difference between theoretical and actual rate (0.95%) 2.43%

Deferred taxes

Following the results for the year and based on estimated future assessable income, deferred tax assets and liabilities were recognised – for IRES and IRAP purposes where applicable – on temporary differences; the effect in the year was a charge to the income statement of Euro 369 thousand.

19. NON-RECURRING TAX CHARGES

The account in the 2012 financial statements includes charges from an assessment received from the Tax Administration totalling Euro 497 thousand, in relation to VAT recoveries and consequent sanctions and interest for the years 2007 and 2009.


EXPLANATORY NOTES

128

ASSETS

20. INTANGIBLE ASSETS

The breakdown of intangible assets at December 31, 2013 compared to the previous year-end and the movements during the year are reported in the table below:


Concessions, trademarks and similar rights 8,420,079 6,095,442 2,324,637

Other intangible assets 3,005,126 2,873,974 131,152

Intangible assets in progress 259,740 248,000 11,470

Industrial patents & intellectual property rights 14,459 19,329 (4,870)

Total intangible assets 11,699,404 9,236,745 2,462,659

The changes in the original costs of the intangible assets were as follows: Concessions,


Other intangible

assets

Intangible assets in progress

Industrial patents

Total Historical cost at 1.1.2012

9,617,012

21,713,451

215,702

43,518

31,589,683

Additions 225,325 1,423,067 248,000 8,902 1,905,294

Reclass. - 215,702 (215,702) - -


9,842,337

23,352,220

248,000

52,420

33,494,977

Additions 2,453,643 1,243,333 259,740 413 3,957,129

Reclass. - 248,000 (248,000) - -


12,295,980

24,843,553

259,740

52,833

37,452,106

The changes in the relative accumulated amortisation provisions were as follows: Concessions,


Other intangible

assets


Industrial patents

Total Acc. Depr. at 1.1.2012

(3,640,403)

(19,211,170)

-

(27,849)

(22,879,422)

Amortisation (106,492) (1,267,076) - (5,242) (1,378,810)

Acc. Depr. at 31.12.2012

(3,746,895)

(20,478,246)

-

(33,091)

(24,258,232)

Amortisation (129,006) (1,360,181) - (5,283) (1,494,470)

Acc. Depr. at 31.12.2013

(3,875,901)

(21,838,427)

-

(38,374)

(25,752,702)


EXPLANATORY NOTES

129

The changes in intangible assets during 2013 are shown in the table below: Concessions,


Other intangible

assets


Industrial patents


5,976,6009

2,502,281

215,702

15,669

8,710,261

Additions 225,325 1,423,067 248,000 8,902 1,905,294

Reclass. - 215,702 (215,702) - -

Amortisation (106,492) (1,267,076) - (5,242) (1,378,810)

Closing net book value at 31/12/2012

6,095,442

2,872,974

248,000

19,329

9,236,745

Additions 2,453,643 1,243,333 259,740 413 3,957,129

Reclass. - 248,000 (248,000) - -

Amortisation (129,006) (1,360,181) - (5,283) (1,494,470)


8,420,079

3,005,126

259,740

14,459

11,699,404

At December 31, 2013 the intangible assets report investments of Euro 3.9 million, amortisation of Euro 1.5 million; there were no significant disposals during the year.

The most significant investment in the year related to the “concessions, trademarks and similar rights” and concern the payment of a supplement to the original price paid for the purchase of the K-Way trademark, amounting to Euro 2.2 million, within the framework of an agreement at the end of July with the Bankrupt Formula Sport Group, in which the outcome of a Legal Dispute before the Court of Appeal was awaiting a ruling arising from the ordinary revocatory action, in relation to the acquisition of the K-Way brand, signed on January 31, 2004, with Formula Sport Group S.r.l., at the time not in liquidation. The agreement permitted the final settlement of all claims with the Receiver, concerning all relations between the BasicNet Group and the company Formula Sport Group S.r.l. The agreement reached with the Receiver, which prejudiced the defense and appeals made by BasicNet, allowed the Group to avoid unforeseeable risks, guaranteeing the stability of the Trademarks portfolio.

The remainder of the increases in “concession, trademarks and similar rights” is due to costs incurred for the registration of trademarks in new countries, for renewals and extensions and for the purchase of license software.

The brand K-Way has a book value of Euro 8 million at December 31, 2013. In view of the strategic positioning reached by the brand, where there is currently no predictable time frame for the generation of future cash flow streams, it is considered an intangible asset with indefinite useful life.

The impairment test on the book value was carried out in line with previous years, discounting the royalty net cash flows estimated from the brands in the period 2014-2018. For the years beyond the fifth year a terminal value was calculated on the net royalty cash flow of the fifth year, with a growth rate of 1.5%. These net cash flows were discounted at the weighted average cost of capital (WACC) equal to 7.25% (7.2% in 2012), determined with reference to the following parameters, taken from the principal financial information websites:

Sector Beta: the parameter, indicator of the sector risk, amounts to 1.16 (1.09 in 2012).

Market Risk Premium (MRP): amounts to 5%, unchanged compared to the previous year, and represents the difference between the return on the investments without risk and the return of the investments with risk.


EXPLANATORY NOTES

130

Risk Free Rate (RFR): amounts to 4.27% (4.5% in 2012), in line with the return on ten-year State bonds.

Cost of debt: amounts to 4.2%, unchanged compared to the previous year.

Debt (40%)/equity (60%) ratio, unchanged compared to the previous year.

Following the impairment test no write-down is required of the book value of the trademarks.

Finally, as in previous years the results of the tests were compared with the valuations made by an independent advisor, which continue to illustrate values largely above the book values.

The breakdown of “other intangible assets” is as follows:


Software programmes 2,999,926 2,866,247 133,679 Other intangible assets 5,200 7,727 (2,527)

Total other intangible fixed assets 3,005,126 2,873,974 131,152

The account increased Euro 1.5 million principally due to the implementation of new software programmes realised internally and decreased due to the amortisation for the year of approx. Euro 1.3 million.

21. PLANT, MACHINERY AND OTHER ASSETS

The breakdown of plant, machinery and other assets at December 31, 2013 compared to the previous year is shown in the table below:


Plant and machinery 14,442 2,651 11,791 Industrial and commercial equipment 56,671 68,057 (11,386) Other assets 1,228,147 1,315,341 (87,194)

Total plant, machinery and other assets 1,299,260 1,386,049 (86,789)

The changes in the historical cost of plant, machinery and other assets were as follows:

Plant and machinery


Other assets

Total


136,667

229,101

5,300,390

5,666,158

Additions 1,628 12,406 487,122 500,796

Disposals - - (7,470) (7,470)


137,935

241,507

5,780,042

6,159,484

Additions 14,500 9,702 185,522 209,724

Disposals - - (4,153) (4,153)


152,435

251,209

5,961,411

6,365,055


EXPLANATORY NOTES

131

The changes in the relative accumulated amortisation provisions were as follows:

Plant and machinery


Other assets

Total

Acc. Depr. at 1.1.2012

(132,760)

(153,121)

(4,186,114)

(4,471,995)

Depreciation (2,524) (20,329) (281,632) (304,485)

Disposals - - 3,045 3,045

Acc. Depr. at 31.12.2012

(135,284)

(173,450)

(4,464,701)

(4,773,435)

Depreciation (2,709) (21,088) (272,629) (296,426)

Disposals - - 4,066 4,066

Acc. Depr. at 31.12.2013

(137,993)

(194,538)

(4,733,264)

(5,065,795)

The changes in the plant and machinery are shown in the table below:

Plant and machinery


Other assets


3,907

75,980

1,114,276

1,194,163

Additions 1,268 12,406 487,122 500,796

Disposals - - (4,425) (4,425)

Depreciation (2,524) (20,329) (281,632) (304,485)


2,651

68,057

1,315,341

1,386,049

Additions 14,500 9,702 185,522 209,724

Disposals - - (87) (87)

Depreciation (2,709) (21,088) (272,629) (296,426)


14,442

56,671

1,228,147

1,299,260

This account “other assets” consist of:


EDP 257,356 332,352 (74,996) Furnishings and fittings 300,431 287,593 12,838 Transport vehicles 55,297 98,923 (43,626) Other assets 615,063 596,473 18,590

Total other assets 1,228,147 1,315,341 (87,194)

The investments in the year relate to the acquisition of furnishings and fittings for Euro 68 thousand, EDP for Euro 41 thousand, moulds for new products for Euro 61 thousand, plant for Euro 15 thousand and equipment of approx. Euro 10 thousand and minor assets of Euro 15 thousand. The account also includes assets held under finance leasing contracts.


EXPLANATORY NOTES

132

The account “other assets” includes the purchase cost of an IT collection comprising rare pieces which represents significant elements and representative of the IT revolution, in the 1970’s and 1980’s with the advent of the new personal computer. This collection is utilised in many events related to the promotion of the brands and logos of the Group. The account also includes the purchase cost of moulds for footwear, so that ownership is held in order to control the strategic stages of the production process utilised by the suppliers’ of finished products.

22. EQUITY INVESTMENTS AND OTHER FINANCIAL ASSETS

The list of investments and changes during the year are shown in Attachment 1 to the explanatory notes:


Equity investments in: - Subsidiaries 35,754,513 16,177,928 19,576,585 - Joint-venture 435,000 435,000 - - Other companies 128 5,378 (5,250) Total equity investments 36,189,641 16,618,306 19,571,335

Receivables: Receivables from joint venture 90,000 90,000 - - Other receivables 6,931 6,931 - Total financial receivables 96,931 96,931 -

Total equity investments and other financial assets

36,286,572 16,715,237 19,571,335

Reference should be made to Attachment 1 for information on the book value of the investments in subsidiaries.

The value of the investments increased following the direct capital injections of the subsidiary BasicItalia S.p.A. during the year, through the conversion of the loans whose effect was already considered in the impairment test with reference to the financial statements for the year ended December 31 2012.

At the end of the year BasicNet S.p.A. acquired from the subsidiary Basic Properties B.V., at carrying value, its 10% stake in BasicItalia S.p.A., acquiring full control of the subsidiary.

In line with the practice adopted by other large listed groups in Italy, BasicNet S.p.A. identifies in the negative differential between the share of net equity held in the subsidiary and its book value an indicator of an impairment for the investments of control in its financial statements. From this comparison, undertaken for all of the subsidiaries, it emerged the necessity to undertake an impairment test on the book value on the investment of the subsidiary BasicItalia S.p.A.

The test was undertaken comparing the book value of the investment with its value in use, determined through discounting the net cash flows from BasicItalia S.p.A. and its subsidiaries, in the five year period 2014-2018, to the WACC (Note 20), deducting the total net debt of the sub-group. This impairment test did not result in the need for a write-down in the book value of the investment, also due to the activities implemented from the first quarter of 2013 in order to recover profitability in the operating activities of BasicItalia S.p.A. and its subsidiaries. Reference should be made to the Directors’ Report for further information.

The book value of the subsidiary Basic Properties B.V., amounting to Euro 3.6 million at December 31, 2013, was unchanged compared to the previous year. The Dutch subsidiary, now only a sub-holding, in turn holds two controlling investments in Luxemburg companies owning the historic brands Kappa/Robe di Kappa and Superga, respectively Basic Trademark S.A. and Superga Trademark S.A. For the purposes


EXPLANATORY NOTES

133

of the impairment test, the book value of the investment in the Dutch sub-holding was compared with the value in use of the brands directly held, determined in accordance with the description at Note 20 of the consolidated financial statements. The impairment test did not give rise to any write-down.

The receivables from joint ventures relates to a shareholder loan in favour of AnziBesson Trademark S.r.l..

Other receivables refer to guarantee deposits.

23. DEFERRED TAX ASSETS

Deferred tax assets were recorded for Euro 206 thousand, net of deferred tax liabilities.

The breakdown of the accounts is shown below:


Net deferred tax asset (liability) 205,832 656,143 (450,311)

Total net deferred tax asset (liability) 205,832 656,143 (450,311)

The deferred tax assets and liabilities recognised and their impact are reported in the table below:

December 31, 2013 December 31, 2012 (in thousands of Euro) Amount of

differences

Rate %

Tax effect

Amount of differences

Rate %

Tax effect

Changes 2013/2012

Deferred tax asset: - Excess doubtful debt provision not deductible

(289)

27.50

(79)

(157)

27.50

(43)

(36)

- Inventory obsolescence provision (913) 31.40 (279) (671) 31.40 (212) (67) - Unrealised exchange losses (63) 27.50 (18) (8) 27.50 (3) (15) - ROL surplus (1,255) 27.50 (345) (2,291) 27.50 (630) 285 - Charges temporarily non-deductible

(160)

27.50

(44)

(88)

27.50

(25)

(19)

- Effect IAS 39 – financial instruments

(173)

27.50

(47)

(411)

27.50

(113)

66

Total (2,853) (812) (3,626) (1,026) 214 Deferred tax liabilities: - Unrealised exchange gains 55 27.50 15 - 27.50 - 15 - Tax deductible on a cash basis - 27.50 - 2 31.40 1 (1) - Charges deductible in advance 170 27.50 47 93 27.50 26 21 - Depr./Amort. tax basis 1,669 31.40 524 1.063 31.40 334 190 - Effect IAS 19 – Employee Benefits

74

27.50

20

32

27.50

9

11

Total 1,968 606 1,190 370 236

Net deferred tax liability (asset) - (206) - (656) 450

Deferred tax asset relating to fiscal losses

-

27.50

-

-

27.50

-

Net deferred tax liability/(asset) -

(206)

-

(656)

450


EXPLANATORY NOTES

134

24. NET INVENTORIES

The composition of the item is as follows:


Finished products and goods for resale 1,668,460 1,481,355 187,105 Goods in transit or held at third parties 3,728 - 3,728 Payments on account to suppliers 912 39,570 (38,658)

Gross value 1,673,100 1,520,925 152,175

Inventory obsolescence provision (912,775) (670,775) (242,000)

Total net inventories 760,325 850,150 (89,825)

“Inventories” includes samples to be sold to licensees. Inventories are valued under the weighted average cost method and net of the obsolescence provision considered reasonable for a prudent valuation of inventories of prior year sample collections. The movements in the provision during the year were as follows:

2013 2012

Inventory obsolescence provision at 1.1 670,775 765,775 Provisions in the year 320,000 100,000 Utilisations (78,000) (195,000)

Inventory obsolescence provision at 31.12 912,775 670,775

The utilisation of the provision relates to the disposal of the excess samples from previous years.

25. TRADE RECEIVABLES


Trade receivables – Italy 615,647 1,432,255 (816,608) Trade receivables – Abroad 8,521,331 6,142,586 2,378,745 Doubtful debt provision (702,867) (397,963) (304,904)

Total trade receivables 8,434,111 7,176,878 1,257,233

In particular, the breakdown of foreign receivables is as follows:


Europe 2,365,855 1,100,198 1,265,657 The Americas 892,791 578,621 314,170 Asia and Oceania 5,058,566 4,053,336 1,005,230 Middle East and Africa 204,119 410,431 (206,312)

Total 8,521,331 6,142,586 2,378,745


EXPLANATORY NOTES

135

“Trade receivables” amounts to approx. Euro 8.4 million and were written down to their realisable value through the doubtful debt provision, although the majority of the receivables are secured by bank guarantees.

The provision at the end of the year represents a prudent estimate of the risk. The movements in the doubtful debt provision during the year were as follows:

Amount

Balance at 31.12.2012 397,963 Utilisation for administration procedures and other losses (15,096) Provisions in the year 320,000

Balance at 31.12.2013 702,867

The utilisation of the provision relates to the write-off made on the certainty of the receivable irrecoverability and consequent tax deductibility of the loss.

The book value of receivables, all due within one year, is in line with their fair value.

The aging of the receivables is as follows:

(In Euro thousands) December 31, 2013 December 31, 2012

Receivables not overdue and non written down

5,647 5,109

Receivables written down, net of provision 617 726

Overdue and non written down 2,170 1,342

Total 8,434 7,177

The overdue receivables and not written down include one debtor overdue between 0-6 months.

26. OTHER CURRENT ASSETS


Receivables from Group companies 46,214,243 68,598,676 (22,384,433) Tax receivables 1,856,903 2,653,019 (796,116) Supplier advances - 32,682 (32,682) Other receivables 794,637 1,452,187 (657,550)

Total other current assets 48,865,783 72,736,564 (23,870,781)


EXPLANATORY NOTES

136

The breakdown of “receivables from Group companies” is as follows:


Trade receivables

BasicItalia S.p.A. 794,015 2,519,586 (1,725,571) Basic Village S.p.A. con Socio Unico 31,414 - 31,414 Superga Trademark S.A. 490,313 125,000 365,313 Basic Properties America Inc. 20,607 27,886 (7,279) Basic Trademark S.A. 916,667 2,759,197 (1,842,530) Basic Properties B.V. 160,000 69,574 90,426 Anzi Besson Trademark S.r.l. 5,000 - 5,000 Fashion S.p.A. 40,011 15,494 24,517 BasicNet Asia Ltd. 35,776 560,237 (524,461) BasicOutlet S.r.l. con Socio Unico 501 - 501 RdK0 S.r.l. con Socio Unico 539 - 539 Jesus Jeans S.r.l. 12,121 5,000 7,121

Total trade receivables 2,506,964 6,081,974 (3,575,009)

Financial receivables

BasicItalia S.p.A. c/c intercompany 13,707,489 31,027,516 (17,320,027) Basic Village S.p.A. c/c intercompany 5,522,604 4,166,729 1,355,875 Superga Trademark S.A. loan for brand acquisition

19,000,000 19,000,000 -

Superga Trademark S.A. 4,010,668 3,803,215 207,453 Basic Properties B.V. - 4,000,000 (4,000,000) RdK0 S.r.l. con Socio Unico 662,535 259,624 402,911 BasicOutlet S.r.l. con Socio Unico 704,849 204,235 500,614 BasicCRS S.r.l. con Socio Unico 99,134 55,383 43,751 Total financial receivables 43,707,279 62,516,702 (18,809,424)

Total 46,214,243 68,598,676 (22,384,433)

Financial receivables originate from loans and advances for the financing needs of the subsidiaries within the centralised treasury management; these receivables are at market interest rates and vary in accordance with the financial cash flow needs within the Group. This account includes other receivables ceded to the Parent Company by the companies within the tax consolidation. The account reports a net decrease of Euro 18.8 million principally relating to the capital injection made in favour of BasicItalia S.p.A., in addition to normal intercompany treasury movements.

No receivables have a residual duration of above 5 years.

The account “tax receivables” includes withholdings on royalties totalling Euro 769 thousand, IRAP receivable of Euro 133 thousand, IRES receivable of Euro 25 thousand, Tax reimbursement due of Euro 284 thousand, in addition to a VAT receivable to be recovered through the Group VAT settlement amounting to approx. Euro 645 thousand.

The account “other receivables” includes the premium paid to the insurance company against the Directors Termination Indemnities for Euro 0.6 million, as approved by the Shareholders’ Meeting for the 2013-2016 three year mandate, as described in the Remuneration Report to which reference should be made and other minor amounts. The value decreased compared to the previous year following the repayment obtained by the company for the share relating to the previous three years, consequently paid to the Directors.


EXPLANATORY NOTES

137

27. PREPAYMENTS

The table below shows the breakdown of the account:


Prepaid expenses on 2013 collections 2,762,216 2,669,178 93,038 Assistance and maintenance contract 62,449 51,364 11,085 Insurance - 15,203 (15,203) Rentals, leases, hire and other 216,688 53,426 163,262

Total prepaid expenses 3,041,353 2,789,171 252,182

Prepaid costs include creative personnel costs and sample costs for collections for which the corresponding sales revenues have not been realised. The account increased due to the greater activity undertaken for the development of the brands and samples for licensees.

28. CASH AND CASH EQUIVALENTS


Bank and post office deposits 3,128,458 388,050 2,740,408 Cash in hand and similar 14,299 12,712 1,587

Total cash and cash equivalents 3,142,757 400,762 2,741,995

“Bank deposits” refer to temporary current account balances principally due to receipts from clients.

SHAREHOLDERS’ EQUITY & LIABILITIES

29. SHAREHOLDERS’ EQUITY


Share capital 31,716,673 31,716,673 - Treasury shares (5,764,864) (5,456,811) (308,053) Legal reserve 3,728,591 3,595,531 133,060 Treasury shares in portfolio reserve 5,764,864 5,456,811 308,053 Other reserves: - Cash Flow Hedge Reserve (125,080) (297,629) 172,549 - Remeasurement reserve for defined benefit plans (IAS 39)

(54,974)

(97,602)

42,628

- Retained earnings 33,000,752 30,688,095 2,312,657 Net profit for year 4,583,030 2,753,770 1,829,260

Total Shareholders' Equity 72,848,992 68,358,838 4,490,154


EXPLANATORY NOTES

138

The account includes:

- The “legal reserve”, amounting to Euro 3.7 million, which increased by approx. Euro 133 thousand following the allocation of the result for the previous year, as approved by the Shareholders’ Meeting of April 29, 2013;

- The “reserve for treasury shares in portfolio”, amounting to Euro 5.8 million, which equates to the carrying value of the BasicNet shares held in portfolio at year-end, and was set up through utilisation of the “Retained earnings” following the Shareholders’ Meeting resolution, which authorised the purchase of treasury shares;

- The “cash flow hedge reserve”, which changed in the year due to the fair value measurement of the derivative contracts defined as cash flow hedges held at December 31, 2013, relating to the conversion of the variable rate of the Superga loan into a fixed rate. The market valuation of the cash flow hedge derivatives, described in Note 38, is shown net of the tax effect. This reserve is not available for distribution;

- The “remeasurement reserve for defined benefit plans (IAS 19)”, which changed in the year following the adoption of the revised version of IAS 19 (Employee benefits) and refers to the changes in the actuarial gains/losses (“re-measurement”). The valuation is shown net of the tax effect. This reserve is not available for distribution;

- The “retained earnings”, which increased compared to the end of the previous year by Euro 2.2 million following the allocation of the result for the previous year, as approved by the Shareholders’ Meeting of April 29, 2013, net of the decrease for the acquisition of treasury shares.

The share capital of BasicNet S.p.A. amounted to Euro 31,716,673.04 (divided in 60,993,602 ordinary shares) of Euro 0.52 each fully paid in.

Based on the share buy-back programme, at the end of December the Company held 3,459,681 shares, equal to 5.6722% of the share capital, for a total investment of Euro 5,764,864. The weighted average number of shares outstanding in the year was 57,612,315.

The other gains and losses recorded directly in equity in accordance with IAS 1 are reported below.


Effective part of the Gains/losses on cash flow hedge instruments 238 161 77

Effective part of the Gains/losses for re-measurement of defined benefit plans (IAS 19) 59 (128) 187

Tax effect relating to the Other items of the comprehensive income statement (82) (9) (73)

Total other gains/(losses), net of tax effect 215 24 191


EXPLANATORY NOTES

139

The tax effect relating to “Other gain/losses” is as follows:

(In Euro thousands) December 31, 2013 December 31, 2012

Gross value

Tax Charge/ Benefit

Net

value

Gross value

Tax Charge/ Benefit

Net

value

Effective part of Gains/losses on cash flow hedge instruments 238 (65) 173 161 (44) 117

Effective part of the Gains/losses for re-measurement of defined benefit plans (IAS 19)

59 (17) 42 (128) 35 (93)

Total other gains/(losses), net of tax effect 297 (82) 215 33 (9) 25

The statement on the availability of the reserves at December 31, 2013 is show below:

STATEMENT ON UTILISATION AND DISTRIBUTION OF RESERVES

Amount Possibility

of Utilisation

Quota available

Summary of utilisations made in the previous years

to cover losses for other reasons

SHARE CAPITAL 31,716,673

PROFIT RESERVES

Legal reserve 3,728,591 B --

OTHER RESERVES

Retained earnings 33,000,752 A,B,C 33,000,752

TOTAL 68,446,017 33,000,752

Non-distributable quota (180,055)*

Quota distributable 32,820,696

Key: A: for share capital increase - B: for covering of losses - C: for distribution to shareholders- D: not available

* Amount refers to the cash flow hedge and re-measurement for employee benefits (IAS 19 Reserve)

30. LOANS


Loans:

- Superga medium/long term loan 1,781,250 4,156,250 (2,375,000)

- UBI BANCA loan 4,821,425 - 4,821,425

- Other lenders 42,808 58,084 (15,276)

Total loans 6,645,483 4,214,334 2,431,149


EXPLANATORY NOTES

140

The “medium/long-term loan” comprises Euro 1.8 million of the residual Superga loan (“Superga Loan”), provided in July 2007 by the Agent Bank Unicredit Banca d’Impresa S.p.A. and the residual Euro 4.8 million of the loan provided in June 2013 by Unione Banche Italiane ScpA (“UBI Banca Loan”).

The acquisition of the Superga brand by the Group was financed through a syndicated loan of Euro 19 million, with duration for a maximum of 8 years, with lead arranges Unicredit Banca d’Impresa S.p.A. and Banca Intesa Sanpaolo S.p.A. at a variable interest rate convertible into fixed rate (Note 38), with maturity on July 16, 2015. At December 31, 2013, the Superga loan was repaid for Euro 14.8 million, with a residual balance of Euro 4.2 million, of which Euro 2.4 million short-term. Guarantees were provided on this loan on behalf of the arranging banks with a pledge of 100% on the share capital of Superga Trademark S.A. and a pledge on the current accounts of BasicNet S.p.A.

The UBI Banca loan was granted at the end of June 2013 by Unione Banche Italiane ScpA for an amount of Euro 7.5 million at a variable quarterly Euribor plus 400 basis points with repayment of the capital in 14 quarterly instalments and maturity at December 2016. At December 31, 2013, the loan was repaid for Euro 535 thousand, with a residual balance of Euro 6.9 million, of which Euro 2.1 million short-term.

The contractual conditions require the maintenance of financial covenants relating to the consolidated financial statements of the BasicNet Group, which have all been complied with, in addition to commitments and clauses on the ownership in the share capital of BasicWorld S.r.l. and BasicNet S.p.A., which are described in the Explanatory Notes of the Consolidated Financial Statements.

“Payables to other lenders” relate to the accounting of the capital line of finance leases recorded in the accounts under the finance method as per IAS 17.

For completeness of information we provide details of the medium/long-term loans by maturity.


Medium/long term loans: - due within 5 year 6,602,675 4,156,250 2,446,425 - due beyond 5 year - - -

Total medium/long loans 6,602,675 4,156,250 2,446,425

Leasing payables 42,808 58,084 (15,276)

Total leasing payables (maturity within 5 years) 42,808 58,084 (15,276)

Total loans 6,645,483 4,214,334 2,431,149

The changes in the medium/long-term loans during the year are shown below:

(In Euro thousands)

31/12/2012

New loans

Repayments

31/12/2013

Short-term

portion

Medium/long term portion

Superga loan 6,531 - (2,375) 4,156 2,375 1,781

UBI BANCA loan - 7,500 (536) 6,964 2,143 4,821

Lease payables 58 - (15) 43 17 26

Balance 6,589 7,500 (2,926) 11,163 4,535 6,628


EXPLANATORY NOTES

141

31. EMPLOYEE AND DIRECTOR BENEFITS The account includes the post-employment benefits for employees of Euro 1.4 million and the termination indemnities of Directors of Euro 400 million.

The changes in the year of the post-employment benefit liability were as follows:



Defined contributio

n plans

Total


Defined contributio

n plans

Total

Change in the balance sheet: Net liabilities recognised at the beginning of the year

1,456,978 - 1,456,978 1,315,999 - 1,315,999

Interest 37,197 - 37,197 44,748 - 44,748 Pension cost, net of withholdings (264) 383,329 383,066 (168) 361,366 361,198 Benefits paid (49,243) - (49,243) (35,721) - (35,721) Transfer to INPS fund - (294,991) (294,991) - (251,513) (251,513) Payments to other complementary pension fund - (88,338) (88,338) - (109,853) (109,853)- Actuarial gains/(losses) (58,795) - (58,795) 127,671 - 127,671 Internal transfers to the Group 32,011 - 32,011 4,448 - 4,448

Net liabilities recognised in the accounts 1,417,884 - 1,417,884 1,456,978 - 1,456,978

Change in the income statement: Interest 37,197 - 37,197 44,748 - 44,748 Pension Cost 2,724 383,329 386,053 4,901 361,366 366,267 Actuarial gains/(losses) - - - 86,376 - 86,376

Total charges/(income) for post-employment benefits 39,922 383,329 423,251 49,649 361,366 411,015

The account “post-employment benefits” includes the present value of the liabilities of the company in accordance with Article 2120 of the Civil Code. Based on the regulatory changes in 2007, the sums matured prior to January 1, 2007 to employees are recognised as defined benefit plans in accordance with IAS 19 – Employee benefits; those matured subsequent to this date are on the other hand recognised as defined contribution plans in accordance with the same standard.

Within the Company there are no other plans other than defined benefit plans. The actuarial valuation of the Post-Employment Benefit is prepared based on the “matured benefits” method through the Projected Unit Credit Method in accordance with IAS 19. Under this method the valuation is based on the average present value of the pension obligations matured based on the employment service up to the time of the valuation, without projecting the remuneration of the employee in accordance with the regulatory modifications introduced by the Pension Reform.

The actuarial model for the measurement of the post-employment benefit is based on various assumptions of a demographic and financial nature. The principal assumptions of the model concerning the actuarial valuations relating to personnel costs are:


discount rate 2.77% 2.40% inflation rate 2.00% 2.00% annual increase in post-employment benefit 3.00% 3.00% annual increase in salaries 1-3% 1-3%


EXPLANATORY NOTES

142

The change in the discount rate reflects the decrease in the yields of the “corporate bonds” of the basket utilised (Iboxx Eurozone Corporate) at the balance sheet date.

32. OTHER NON-CURRENT LIABILITIES


Guarantee deposits 280,666 291,995 (11,329)

Total other non-current liabilities 280,666 291,995 (11,329)

The “guarantee deposits” include the guarantees received from licensees (in place of bank or corporate guarantees), to cover the minimum royalties guaranteed contractually. The net decrease of approx. Euro 11 thousand relates to the increase of Euro 29 thousand for the agreement of new contract licenses and decrease of Euro 40 thousand for the utilisation to cover overdue receivables.

33. BANK PAYABLES


Bank payables due within one year:

- short-term portion of medium/long-term loans 4,517,861 2,375,000 2,142,861

- bank overdrafts and bills 2,089,015 9,847,297 (7,758,282)

- interest expense on loans 127,079 85,385 41,694

Total bank payables 6,733,955 12,307,682 5,573,727

The average interest rates for BasicNet S.p.A. were:


Cash advances 6.01% 3.64%

Medium term loans 5.02% 6.36%

The “bank payables” include the short-term portion of the Superga loan of Euro 2.3 million and the interest expense (Euro 54 thousand) matured on the instalment repaid on January 18, 2014 and the short-term portion of the UBI Banca loan of Euro 2.1 million and the interest expense (Euro 73 thousand) matured on the instalment repaid on January 3, 2014.

Reference should be made to the Directors’ Report for the changes in the net financial positions.


EXPLANATORY NOTES

143

34. TRADE PAYABLES


Italian suppliers 4,745,109 3,595,244 1,149,865 Overseas suppliers 717,954 304,004 413,950

Total trade payables 5,463,063 3,899,248 1,563,815

“Trade payables” are all due in the short-term period.

In particular, the breakdown of foreign suppliers is as follows:


Europe 279,842 111,378 168,464

The Americas 28,561 24,719 3,842

Asia and Oceania 402,427 165,158 237,269

Middle East and Africa 7,124 2,749 4,375

Total 717,954 304,004 413,950

At the date of the present report there are no initiatives for the suspension of supplies, payment injunctions or executive actions by creditors against BasicNet S.p.A.. No interest is charged on trade payables which are normally settled between 30 and 120 days. The carrying value of trade payables approximates their fair value.

35. TAX PAYABLES

The breakdown of this account is shown in the following table:


Tax payables:

Income taxes 1,638,107 119,581 1,518,526 Withholding taxes 9,619 11,023 (1,404) VAT 8,839,532 5,681,518 3,158,014 Employee contributions 292,489 252,737 39,752 Non-recurring tax charge 845,666 1,268,498 (422,832)

Total tax payables 11,625,413 7,333,357 4,292,056

The account “income taxes” refers to the IRES payable for the current year and amounts referring to the tax consolidation.

The VAT payable is consequent of the transfers of balances by the companies within the Group VAT consolidation.


EXPLANATORY NOTES

144

The tax payables for non-recurring charges, which are described further in Note 19 to the consolidated financial statements, are payable in 12 quarterly instalments, of which Euro 420 million due within the year 2014 and the remainder in the following year.

36. OTHER CURRENT LIABILITIES


Payables to Group companies 4,785,344 9,878,699 (5,093,355)

Other payables 3,012,502 2,052,672 959,830

Accrued expenses 249,287 239,167 10,120

Total other current liabilities 8,047,133 12,170,538 (4,123,405)

“Other payables” at December 31, 2013 principally include payables to social security institutions of Euro 490 thousand for the year 2013 and paid in 2014, employee and consultant payables of approx. Euro 1.2 million, which include vacation days matured at December 31, 2013, client payment on accounts of Euro 653 thousand and other items of Euro 688 thousand. All payables are due within one year.

The breakdown of “Payables to Group companies” is shown below:


Trade payables: Basic Trademark S.A. 13,643 9,059,085 (9,045,442) Superga Trademark S.A. - 173,875 (173,875) Basic Village S.p.A. single shareholder 68,640 44,911 23,729 Basic Italia S,p,A. single shareholder 16,667 - 16,667 BasicNet Asia Ltd. - 550,000 (550,000) Fashion S.p.A 9,566 8,663 903 AnziBesson Trademark S.r.l. 28,046 29,898 (1,852) Jesus Jeans S.r.l. single shareholder 1,611 12,267 (10,656) Basic Properties B.V. 140,988 - 140,988 Basic Properties America Inc. 1,472,434 - 1,472,434 Total trade payables 1,751,595 9,878,699 (8,127,104)

Financial payables: Basic Trademark S.A. c/c Intercompany 3,033,749 - 3,033,749 Total financial payables 3,033,749 - 3,033,749

Total 4,785,344 9,878,699 (5,093,355)

The financial payables to Basic Properties America Inc. and Basic Properties B.V. are within the normal operations in the Group’s central treasury management system and in part are compensated during the following year.

The “accruals” refer to employee costs for the 14th month of the year.


EXPLANATORY NOTES

145

37. DEFERRED INCOME


Royalties 84,031 250,872 (166,841)

Other income deferred to following year 16,254 - 16,254

Total deferred income 100,285 250,872 (150,587)

Royalty and other “deferred income” refer to invoicing for revenues which will mature in the following year.

38. FINANCIAL INSTRUMENTS - DERIVATIVES


Derivative financial instruments 172,523 410,522 (237,999)

Total financial instruments - derivatives 172,523 410,522 (237,999)

The account includes the adjustments to market value of the interest rate hedging operations on the medium-term Superga loan (Note 30), signed with Unicredit Banca d’Impresa S.p.A. and Banca Intesa Sanpaolo S.p.A., which converted the variable interest rates into fixed interest rates at 6.36% (cash flow hedge).

An equity reserve was recorded of Euro 125 thousand, net of the tax effect. In the case of the Interest Rate Swap (IRS) agreed by the Company, the specific hedge of the variable cash flow realised at market conditions, through the signing of the fix/flo IRS perfectly hedges the item to which the original cash flows stem, as in this case, and continues to be effective.

39. GUARANTEES GIVEN AND OTHER CONTINGENT ASSETS

The details of the guarantees given are as follows:


Unsecured guarantees: - Surety given on behalf of subsidiaries 41,533,051 60,936,000 (19,402,949) - Other guarantees 86,756 695,163 (608,407)

Total 41,619,807 61,631,163 (20,011,356)


EXPLANATORY NOTES

146

- Surety given on behalf of subsidiaries

The sureties given on behalf of the subsidiaries refer for Euro 10.5 million to the guarantee given to the Unicredit Group on behalf of Basic Village S.p.A. against the loan granted in 2007 for the purchase of the building, guaranteed also by a first level mortgage on the building, for Euro 1.98 million to the guarantee given in 2008 by the Banca Intesa Sanpaolo S.p.A. Group on behalf of BasicItalia S.p.A. against 50% of the mortgage loan granted for the purchase of the building and for the remainder, Euro 29.05 million, guarantees given on behalf of BasicItalia S.p.A., to various credit institutions, to guarantee the commercial credit lines.

- Other guarantees

This refers to the joint commitments which BasicNet S.p.A. has with Basic Village S.p.A. and BasicItalia S.p.A. against the sureties given to the Turin Tax Administration following the request for reimbursement on VAT receivables within the Group VAT consolidation.

40. CLASSIFICATION OF THE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The principal risks and uncertainties of the activities of the Company and of the Group and the activities undertaken to reduce them or avoid them, which are undertaken at Group level, are described in the Directors’ Report.

The financial instruments of BasicNet S.p.A. include:

Cash and cash equivalents and bank overdrafts.

Medium/long-term loans.

Derivative financial instruments.

Trade payables and receivables.

It is recalled that the Group only subscribes to cash flow hedges, to hedge against interest and currency risks.

In accordance with the requirements of IFRS 7 in relation to financial risks, the types of financial instruments present in the financial statements, with indication of the valuation criteria applied, are reported below:

(In Euro thousands)

Financial instruments at fair

value recorded through:

Financial instruments at amortised

cost

Non-listed investments

valued at cost

Book value

at 31.12.2013

P&L Equity Assets: Equity investments and other financial assets

- - - -

Trade receivables - - 8.434 - 8.434 Other current assets - - 48.866 - 48.866 Financial instruments (currency risk) - - - - -

Liabilities: Medium/long term loans - - 6.645 - 6.645 Trade payables - - 5.463 - 5.463 Other current liabilities - - 8.047 - 8.047 Financial instruments (interest rate risk) - 173 - - 173


EXPLANATORY NOTES

147

The financial risk factors, identified at IFRS 7 – Financial instruments: additional disclosures, are described below:

the risk that the fair value or the future cash flows of a financial instrument fluctuate following changes in market prices (“market risk”). The market risk includes the following risks: price, currency and interest;

a. the risk that the fair value or the future cash flows of a financial instrument fluctuate following changes in currency prices (“currency risk”);

b. the risk that the fair value or the future cash flows of a financial instrument fluctuate following changes in market interest rates (“interest rate risk”);

c. the risk that the fair value or the future cash flows of a financial instrument fluctuate following changes in market prices (other than changes determined from interest rate or currency risk), whether the changes are determined by specific factors related to the financial instrument or its issuer, or whether it is due to factors which influence all similar financial instruments traded on the market (“price risk”);

the risk that one of the parties that signs a contract of a financial nature does not comply with an obligation (“credit risk”);

the risk that an entity has difficulty in complying with the obligations associated with the financial liabilities (“liquidity risk”);

the risk that the loans within the companies of the Group contain clauses which allow the counterparties to request the creditor on the occurrence of certain events or circumstances the immediate repayment of the sums granted and not yet due, generating a liquidity risk (“default risk”).

Price risk The Company is exposed to the risk of fluctuations of commodity prices relating to raw materials (wool, cotton, rubber, synthetic fibre etc.) incorporated in the sample collections acquired on international markets, for resale to the licensees.

The Company does not hedge these risks as not directly dealing with raw materials but only finished products and the fluctuations can be transferred on to the final sales price. Currency risk BasicNet S.p.A. has subscribed the majority of its financial instruments in Euro which corresponds to its functional and presentation currency. Operating on the international market the Company is also exposed to fluctuations in exchange rates, principally the US Dollar against the Euro.

At December 31, 2013, realised net exchange losses were recorded of Euro 17 thousand, while unrealised net exchange losses were recorded of Euro 7 thousand, for total net exchange loss of Euro 24 thousand (Note 15).

The group undertakes hedging of the currency risks at Group level.


EXPLANATORY NOTES

148

Interest rate risk The composition of the gross financial debt between fixed and variable interest rates at December 31, 2013 is shown below:

December 31, 2013

% December 31, 2012

%

Fixed rate 4,210,586 31.50% 6,616,635 40.00%

Variable rate 9,168,851 68.50% 9,905,381 60.00%

Gross debt 13,379,437 100.00% 16,522,016 100%

The interest rate fluctuation risks of some medium/term loans were hedged with conversion of the variable rate into fixed rates, as described in Notes 30 and 38. On the remaining part of the financial debt the Group is exposed to the fluctuation risks. The interest on the short-term credit lines are on an average 6.01% in accordance with the type of lending, as illustrated in Note 33. Where at December 31, 2013 the interest rate on long/term loans at that date were 100 basis points higher (or lower) compared to the actual rates, there would be a higher financial charges (lower), before the tax effect, respectively of Euro +62 thousand and Euro -62 thousand. Credit risk The doubtful debt provision (Note 25) which includes provisions against specific credit positions and a general provision on receivables not covered by guarantees, represents approx. 7.69% of trade receivables at December 31, 2013, against average losses in the last three years amounting to 0.8% of receivables and therefore an annual average value of 0.17%.

Liquidity risk Reference should to the Explanatory Notes of the consolidated financial statements.

The table below illustrates the cash flow timing of payments on medium/long-term debt:

Book value Future interest income/

(expense)

Contractual cash flows

Within 1 year

From 1 to 5

years

Over 5 years

Superga loan 4,156 214 4,370 2,554 1,816 - UBI Banca loan 6,964 449 7,413 2,384 5,029 -

Total financial liabilities 11,120 663 11,783 4,938 6,845 -

Default risk and debt covenants

The risk that the loans within the companies of the Group contain clauses which allow the counterparties to request the creditor on the occurrence of certain events or circumstances the immediate repayment of the sums granted and not yet due, generating a liquidity risk.


EXPLANATORY NOTES

149

These covenants refer to the consolidated Group level and were all complied with at December 31, 2013. Reference should to the Explanatory Notes of the consolidated financial statements.

41. TRANSACTIONS WITH HOLDING COMPANIES, ASSOCIATES, OTHER INVESTMENTS AND RELATED PARTIES

The operations undertaken by BasicNet S.p.A. with the companies belonging to the Group in the ordinary management and regulated at market conditions were:

- Organisational, commercial, IT, and administrative services in accordance with specific contracts;

- The granting of rights for the use of know-how developed on the products;

- The granting under license of the K-Way, AnziBesson and Sabelt brands to the subsidiary BasicItalia S.p.A..

- Financial support for the management of the centralised treasury, relations with credit institutions, granting of sureties;

- Commercial assistance, principally relating to the sale of clothing samples, catalogues and payment of commissions;

- Building rental for commercial use by Basic Village S.p.A.;

- Purchase of products by BasicItalia S.p.A. for gifts and promotional expenses;

- Financial income and charges matured on loans within the treasury centralised management system, at market rates.

The income statement effects deriving from these transactions are summarised as follows:

REVENUES

BasicNet Group companies Direct sales

Other income

Royalty income

Financial income

Dividends Total

Basic Properties B.V. - - - 160,000 - 160,000

BasicItalia S.p.A. 1,186,546 851,200 3,877,840 33,001 - 5,948,587

Basic Trademark S.A. - 5,500,000 - - - 5,500,000

Superga Trademark S.A. - 250,000 - 448,616 - 698,616

Basic Village S.p.A. Single shareholder 50,000 6,414 56,414

BasicNet Asia Ltd. 17,936 - - - - 17,936

AnziBesson Trademark S.r.l. - 5,000 - - - 5,000

Jesus Jeans S.r.l. Single shareholder 5,000 5,000

Fashion S.p.A. 5,000 5,000

RdK0 S.r.l. Single shareholder - - - 539 - 539

BasicOutlet S.r.l. Single shareholder - - - 501 - 501

Total 1,204,482 6,666,200 3,877,840 649,101 - 12,397,623


EXPLANATORY NOTES

150

COSTS

BasicNet Group companies Cost of sales Selling, general and administrative costs,

royalties expenses

Financial charges Total

Basic Village S.p.A. Single shareholder - 2,124,741 - 2,124,741

Basic Trademark SA - - 13,643 13,643

BasicNet Asia Ltd. - 641,277 - 641,277

BasicItalia S.p.A. 22,276 220,825 - 243,101

RdK0 S.r.l. Single shareholder - 23,685 - 23,685

Basic Properties America Inc. - - 2,527 2,527

BasicOutlet S.r.l. - 29 - 29

Fashion S.p.A. 9,566 9,566

AnziBesson Trademark S.r.l. - 712 - 712

Total 22,276 3,020,835 16,170 3,059,281

A breakdown of the transactions with related parties with reference to the note to which they refer for the year 2013 is shown below:

Investments

(Note 22) Receivables

(Note 25) Payables (Note 36)

Revenues (Note 41)

Costs (Note 41)

Subsidiaries 35,754,513 46,169,232 4,747,732 12,387,623 3,049,004

Joint venture companies 435,000 45,011 37,612 10,000 10,027

Remuneration of Boards and Senior Executives

- - - - 2,645,776

Total 36,189,513 46,214,243 4,785,344 12,397,623 5,705,057

The remuneration concerns emoluments and all other payments, pension-related or social security deriving from the role of Director or Statutory Auditor in BasicNet S.p.A. and the other companies within the consolidation scope. In relation to the other related parties, we highlight the legal consulting activities undertaken by the Studio Professionale Pavesio e Associati, of the Director Carlo Pavesio and the consultancy undertaken by Pantarei S.r.l. in which the Director Alessandro Gabetti Davicini is Sole Director. These transactions, not material compared to the overall values, were at market conditions. The collections owned by BasicNet S.p.A., which are utilised for media events, shows, press gatherings together with the Brands and/or products of the Group, are subject to a renewable put and call agreement with BasicWorld S.r.l, at a price equal to the costs incurred for their acquisition, in addition to interest at Euribor +200 basis points. This agreement was signed based on the eventual interest of BasicNet S.p.A. to sell this equipment to guarantee the complete recovery of the costs incurred, including financial charges, utilising in the meantime the benefits which derive from such communication instruments for their brands and/or products and, by BasicWorld S.r.l., of the purchase, to avoid that such a collection which would be lost.


EXPLANATORY NOTES

151

42. CONTINGENT LIABILITIES/ASSETS

The BasicNet Group is involved in some legal disputes of a commercial nature which are not expected to give rise to significant liabilities.

Other disputes are described in the Explanatory Notes in the consolidated financial statements (Note 19 and Note 47).


The Chairman


BasicNet S.p.A. – Separate Financial Statements as at December 31, 2013 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ATTACHMENTS

152



(in Euro)

Name/Registered office/Share capital

Share capital

Net equity

Net result

Direct

holding

Indirect holding

Share of equity

Book value

SUBSIDIARY COMPANIES

BASICCRS S.r.l. CON SOCIO UNICO

Strada della Cebrosa, 106 10156 TURIN

Share Capital Euro 10,000. 10,000 86,199 21,870 - 100,00 - -

BASICITALIA S.p.A. CON SOCIO UNICO


Share Capital Euro 7,650,000. 7,650,000 9,866,564 (12,083,265) 100,00 - 9,866,564 31,599,725

BASICNET ASIA LTD. 15 floor, Linkchart Centre No.2 Tai Yip Street Kwun Tong, Kowloon HONG KONG

Share capital HKD 10,000. 935 86,752 (54,354) 100,00 - 86,752 927 BASICOUTLET S.r.l. CON SOCIO UNICO



BASIC PROPERTIES B.V. Herikerbergweg 200 – LunArena – Amsterdam Zuidoost THE NETHERLANDS

Share Capital Euro 18,160. 18,160 5,996,822 (159,542) 100,00 - 5,996,822 3,657,747

BASIC PROPERTIES AMERICA, INC.

c/o Corporation Service Company 11 S 12th Street - PO BOX 1463 – Richmond VA 23218 – U.S.A.

Share capital USD 8,469,157.77 6,140,986 4,782,210 260,844 - 100,00 - -

BASIC SPAIN S.L. Calle Balmes 205 08006 Barcelona – SPAIN

Share Capital Euro 194,621. 194,621 2,339,165 117,819 - 100,00 - -

BASIC TRADEMARK S.A. 42-44 Avenue de la Gare L-1610 Luxembourg

Share Capital Euro 1,250,000. 1,250,000 2,533,448 10,284,247 0,002 99,998 5,067 25

BasicNet S.p.A. – Separate Financial Statements as at December 31, 2013 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ATTACHMENTS

153



Share capital

Net equity

Net result

Direct

holding

Indirect holding

Share of equity

Book value

SUBSIDIARY COMPANIES

BASIC VILLAGE S.p.A. CON SOCIO UNICO

Largo M. Vitale, 1 10152 TURIN

Share Capital Euro 412,800. 412,800 3,838,200 341,142 100,00 - 3,838,200 414,715 JESUS JEANS S.r.l CON SOCIO UNICO

Largo M. Vitale, 1 10152 TURIN

Share Capital Euro 10,000. 10,000 24,228 15,232 100,00 - 24,228 81,375

RDK0 S.r.l. CON SOCIO UNICO



SUPERGA TRADEMARK S.A. 42-44 Avenue de la Gare L-1610 LUXEMBOURG

Share Capital Euro 500,000. 500,000 (32,654) 554,175 - 100,00 - -

JOINT-VENTURE

ANZIBESSON TRADEMARK S.r.l. Largo M. Vitale, 1 10152 TURIN

Share Capital Euro 50,000. 50,000 189,641 (20,081) 50,00 - 94,821 25,000

FASHION S.p.A. C.so Stati Uniti, 41 10129 TURIN

Share Capital Euro 240,000. 240,000 417,377 (55,197) 50,00 - 208,689 410,000

BasicNet S.p.A. – Separate Financial Statements as at December 31, 2013 -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ATTACHMENTS

154




31/12/2012 Book value

Acquisitions/Incor.

Capital payments to cover losses

Investments impairments

Disposals

31/12/2013 Book value

% held Parent

HOLDINGS IN SUBSIDIARY COMPANIES

BasicItalia S.p.A. con Socio Unico 12,023,139 76,585 19,500,000 - - 31,599,724 100%

BasicNet Asia Ltd. 927 - - - - 927 100%

Basic Properties B.V. 3,657,747 - - - - 3,657,747 100%

Basic Trademark S.A. 25 - - - - 25 0,002%

Basic Village S.p.A. – con Socio Unico 414,715 - - - - 414,715 100%

Jesus Jeans S.r.l. – con Socio Unico 81,375 - - - 81,375 100%

TOTAL SUBSIDIARY COMPANIES 16,177,928 76,585 19,500,000 - - 35,754,513

HOLDINGS IN JOINT-VENTURE

AnziBesson Trademark S.r.l. 25,000 - - - - 25,000 50%

Fashion S.p.A. 410,000 - - - - 410,000 50%

TOTALE JOINT-VENTURE 435,000 - - - - 435,000

HOLDINGS IN OTHER COMPANIES

Consorzio Padova “55” 5,250 - - - (5,250) -

Consortiums and other minor 128 - - - - 128

TOTAL OTHER COMPANIES 5,378 - - - (5,250) 128

TOTAL EQUITY HOLDINGS 16,618,306 76,585 19,500,000 - (5,250) 36,189,641

FINANCIAL RECEIVABLES

Other receivables (guarantees) 6,931 - - - - 6,931

Loans to subsidiaries 90,000 - - - - 90,000

TOTAL RECEIVABLES 96,931 - - - - 96,931

TOTAL INVESTMENTS AND OTHER FINANCIAL ASSETS 16,715,237 76,585 19,500,000 - (5,250) 36,286,572


ATTACHMENTS

155

ATTACHMENT 2


Registered office Parent Share Capital % Holding and voting

rights - AnziBesson Trademark S.r.l.


EURO 50,000 50

- BasicCRS S.r.l. - con Socio Unico

Turin (Italy) BasicItalia S.p.A.

EURO 10,000 100

- BasicItalia S.p.A. ) con Socio Unico


EURO 7,650,000 100


Hong Kong (China) BasicNet S.p.A. HKD 10,000 100

- BasicOutlet S.p.A. - con Socio Unico


- Basic Properties B.V.

Amsterdam (NL) BasicNet S.p.A.

EURO 18,160 100



Basic Properties B.V. USD 8,469,157,77 100

- Basic Spain S.L.

Barcelona (Spain) Basic Properties B.V. EURO 194,621 100

- Basic Trademark S.A.

Luxembourg Basic Properties B.V. EURO 1,250,000 100

- Basic Village S.p.A. - con Socio Unico


- Fashion S.p.A.


EURO 240,000 50

- Jesus Jeans S.r.l. con Socio Unico


- RdK0 S.r.l. - con Socio Unico


- Superga Trademark S.A. (1)

Luxembourg Basic Properties B.V. EURO 500,000 100

(1) shares subject to pledges with right of vote at Extraordinary Shareholders’ Meeting to the Lead Bank Unicredit Banca d’Impresa S.p.A. for the “Syndicated” loan of July 16, 2007 with expiry on July 16, 2015.

BasicNet S.p.A. – Separate Financial Statements as at December 31, 2013 -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ATTACHMENTS

156

ATTACHMENT 3

DECLARATION OF THE FINANCIAL STATEMENTS PURSUANT TO ARTICLE 154-BIS PARAGRAPH 5 AND 5-BIS OF LEGISLATIVE DECREE NO. 58 OF FEBRUARY 24, 1998

“FINANCE ACT ON FINANCIAL INTERMEDIATION”

The undersigned Marco Daniele Boglione as Executive Chairman, Franco Spalla as CEO, and Paolo Cafasso as Executive Officer Responsible for the preparation of financial statements of BasicNet S.p.A., affirm, and also in consideration of Article 154-bis, paragraphs 3 and 4, of Legislative Decree No. 58 of February 24, 1998:

the adequacy for company operations and the effective application, of the administrative and accounting procedures for the preparation of the 2013 financial statements.

In addition, we certify that the financial statements:

a) correspond to the underlying accounting documents and records;

b) were prepared in accordance with International Financial Reporting Standards adopted by the European Union and also in accordance with Article 9 of Legislative Decree 38/2005 and provide a true and fair representation of the balance sheet, financial position and results of the Issuer;

c) the Directors’ Report includes a reliable analysis on the performance and operating result as well as the situation of the Issuer, together with a description of the risks and uncertainties to which they are exposed.

Marco Daniele Boglione Chairman

Franco Spalla Paolo Cafasso Chief Executive Officer Executive Officer Responsible

BasicNet S.p.A. – Separate Financial Statements as at December 31, 2013 -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ATTACHMENTS

157

ATTACHMENT 4

DISCLOSURE PURSUANT TO ARTICLE 149 DUODECIES OF THE CONSOB ISSUER’S REGULATION

Type of service

Service provider

Company

Fees earned 2013

Audit PricewaterhouseCoopers S.p.A. Parent BasicNet S.p.A.

Subsidiaries 91,306

140,721 Certification services PricewaterhouseCoopers S.p.A. - - Other services PricewaterhouseCoopers S.p.A. - 55,000

Total 287,027

Download - BasicNet 2013 Annual Report Accounts 2013 Annual... · 2013 ANNUAL REPORT AND ACCOUNTS CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2013 ... Paolo Cafasso Giovanni

Top Related